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this company receives 624m in 4months time
: $/pound
spot 1.5475-1.55103mon forward 1.5362-1.5398
1 year forward 1.5140 -1.5178so four months time is not given. examiner has calculated 1.5398 – ( (1.5398-1.5178)/9)
these are my doubts
1) why 1.5398-1.5178/9 deducted from 1.5398? this figure –> 1.5398-1.5178)/9) gives 1month rate ,so shouldnt we add it with 1.5398 to get 4month rate since 1.5398 is 3mon rate ??2)is it bec its a receipt case we took 1.5398 and 1.5398-1.5178?( selling price) if it was payment case ,do we take 1.5362-1.5140 =xx —> add or less with 1.5362?
3)can we find out lock in rate for this problem as in difference between spot -3months ( 1.5510-15398) = 0.0112 which is 3month fluctuation divide it by 3 gives 1 month fluctuation =0.0037 adding with 3 mon 1.5398+0.0037
1. The 12 month forward rate is lower than the 3 month forward rate, and so the 4 month rate must be lower as well. (If the 12 month rate had been higher than the 3 month rate then the 4 month rate would have been higher and then we would have added).
2. Yes – you would have taken 1.5362 and subtracted,
3. Yes, but you would subtract for the same reason as before.
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