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Derivatives EOC Answer Explanation Makes No Sense

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    • Avatar of vincenttvincentt
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        • CFA Level 3
        25 Sep 2017 at 7:21 am
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        It’s up to you which ever method that works for you, personally I don’t really use the fixed f/d method as long as your answers are in the same order (numerator and denominator) before multiply the answers in #1 and #2 you will be fine.

        The only exception is when there’s bid and ask, you can’t just switch it around with 1/x. For example when you switch from buy EUR to sell EUR, you would have to use the relevant rate and not just with the 1/x.

      • Avatar of ykilsteinykilstein
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          25 Sep 2017 at 7:16 am
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          I believe what you’re saying is ignore notation (f/d) and “go down” the direction they want you to. (GBP/EUR) This relates to Econ exchange rates and I see from here that could use some work!

          Thx @vincentt

        • Avatar of vincenttvincentt
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            • CFA Level 3
            25 Sep 2017 at 7:04 am
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            Don’t get distracted by domestic or foreign as it doesn’t really matter in this case.

            1. Look at the answer, what rate is it presented in? GBP/EUR which is the same numerator/denominator as the question (e.g. GBP per EUR = .6892 )

            2. Now convert both the exchange rate to a 244 days forward:

            GBP
            1.0417 ^ (244/365) = 1.027687
            EUR
            1.0328 ^ (244/365) = 1.021809

            In the same order as the rate give GBP / EUR = 1.027687 / 1.021809 = 1.005752

            3. Now multiply the spot rate with the answer in 2 (1.005752), which will give you 0.693165

            Unless the answer is asking for EUR / GBP you can easily get that with the [1/x ] button on your BA II calculator.

          • Avatar of ykilsteinykilstein
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              25 Sep 2017 at 10:57 am
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              Even tho the #’s are right, the book’s formula still makes no sense.

              I hear what you’re saying. Better to think abt it as Price/Base. If you’re in Australia and you’re dealing GBP for EUR’s, who gives a rat’s behind what country everyone’s in.

              With all that bid-ask inverse stuff, my econ is glaringly lacking.

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