I can’t master these currency questions. Does anyone have tips on how they think about currency swaps/forwards.
I’m embarrassed that after 3 years of studying these types of questions, I still struggle so badly.
I took the 2009 AM mock today and got obliterated by Question #9 Part B.
Long put JPY so
convert the quote to base jpy - strike 0.01 cad/jpy (100jpy/cad)
similarly 1/102.5 cad/jpy
Now put payoff = (x-s),0 -> 0.00024 x 100 contracts x notional jpy ~3.05k cads
Decent explanation to it here. Welcome anyone on AF to challenge, but I think denominating the Put on yen in yen was nothing more than a trick – probably is dead obvious if you’re strong in currency. Was not to me.
Upshot: inversion of Put price/bid is not a normal step, but for sure the inverted values should be picked up.
You are asked to calculate exposure in currencies different than domestic as I recall domestic was CAD and as final step calculate net G/L in domestic currency units, CAD. Thus to get CAD/JPY and finally loss in CAD you have to simply reverse a put strike expressed as JPY/CAD to get strike in form of CAD/JPY. Another exposure in EUR was correctly expressed in EUR as base currency.
Currency is asset as any other asset. Try to think as exposure CAD/Bananas and you should calculate loss or gain in CAD not in bananas.