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Basic Question 16 of 20
Three months ago a dealer sold EUR 1 million forward against USD for a 180-day term at an all-in rate of 1.2765 (USD/EUR). The following is the current spot rate and forward points being quoted for the USD/EUR pair:
Three month: -15/-14
Six month: -20/-18
B. 0.0015 x 1,000,000 = 15,000 USD.
C. zero.
Spot rate (USD/EUR): 1.2780/1.2790
Three month: -15/-14
Six month: -20/-18
What is the mark-to-market value of the deal?
A. Not enough information, as the LIBOR rate is not given.
B. 0.0015 x 1,000,000 = 15,000 USD.
C. zero.
User Contributed Comments 5
| User | Comment |
|---|---|
| nfressell2 | The Practice Exam on CFA website (AM session) says the offsetting position would use the offer price rather than the bid, thus should be not enough information? |
| peraltm | I also thought we should use offer price here for buying the 3month forward, so I'm confused as to why C is correct. |
| sargis | If dealer is buying it is bid price |
| davidt876 | like sargis is saying, if the dealer wants ur base he 'bids' for it. if you want the dealer's base he tells you how much he's 'asking' for it. the base is always the frame of reference. for example base = domestic market (for covered parity) |
| davidt876 | oh snap... sorry sargis, i see ur point. if it's the dealer buying from herself then she buys at her bid price and it's all reversed. and if the dealer can enter into a contract to convert USD into GBP (in 3 months) at the same price she has to sell the EUR at (right now) to close out the current contract, then the net effect is 0... the money just has to stay in a USD account for 3 months (or the contract duration) - right? the dealer is left with the same amount of EUR in the end |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
explain spot and forward rates and calculate the forward premium/discount for a given currency;
calculate the mark-to-market value of a forward contract;
CFA® 2025 Level II Curriculum, Volume 1, Module 8.