Can anyone answer me why you would convert the USD amounts to euro and yen? It seems that is what people did and got like 7000 plus contracts but I kept debating this but eventually did not convert to euro and yen since the futures contracts where in USD. Can anyone give the answers again? -Thanks.

Should be short 9000 in Yen and 7000 in Euro Because you expect to receive Yen and Euro in the future from your investment, you should short future.

Quick comment on this one. I was running out of time and the numbers I frantically ran were about to break my calculator. It was a sick joke to make us convert nearly a billion dollars into yen in such a time-pressured test. I actually got annoyed. So I left it and went back to asset allocation and the bond rotation.

I wrote everything in thouands, so I don’t have to freaking repeat so many 0s.

bluelily Wrote: ------------------------------------------------------- > I wrote everything in thouands, so I don’t have to > freaking repeat so many 0s. I just did it by percentages based on spot rates. Example; the 900 was 56.25% of 1700 and the 700 was 43.75% of 1700. So I used those weights to calculate the profit and loss just based on changes in the spot/forward rates. I don’t think it is correct but I wasn’t sure about the problem anyway and time was short.

I just did (ending value of portfolio in - beginning value of portfolio in ) / beginning value of portfolio in $ There is one example like this in the notes. Because the weight changes, the portfolio return will not be the weighted average return of individual assets, but should be close if the weight does not change much.

bluelily Wrote: ------------------------------------------------------- > I just did (ending value of portfolio in - \> beginning value of portfolio in ) / beginning > value of portfolio in $ > > There is one example like this in the notes. > > Because the weight changes, the portfolio return > will not be the weighted average return of > individual assets, but should be close if the > weight does not change much. Yes the end mv- beg mv/ beg mv is the correct approach. I was just scrambling for time and didn’t want to calculate returns on both sets of currencies.

damm!t at first I converted the USD amounts to euro and yen but then I switched it to using USD since the futures were quoted in USD, how would you have yen/euro in the numerator and usd in the demoninator?

It doesn’t matter how the future is quoted. It depends on your position in your future currency. If you expect to receive foreign currency, short; if you expect to pay, long.

^ Yea I agree with that but to calc the # of futures why would you convert to euro/yen if the futures are quoted in usd.

It says $9million investment in Yen and $7 in Euro. You simply divided that by future contract size, which is $100,000, I think. You only hedge the principal. There is no converting here. All quoted in USD.

^^^ O ok that is what I did but I didn’t get 9000 contracts, for the futures though I took the contract size of 100,000 and times it by the price of like 115, i.e. pf *multipler? Everyone just did the 100,000…?

Price is not multiplier. I think you might have got confused.

No I thought multiplier was the 100k and the price was the 115, but i’m sure I got it confused and wrong, hopefully they give me some pts. thanks Such an easy concept that I knew and I blew it, d@mn! So crunched for time…

This was indeed a short of these two right? I answered to sell 7000 and 9000. I used the formula out of the CFAI practice exam: (V1S1/V0S0) - (f1-f0)/S0 to calculate the results of the hedge. S0 = spot at time 0 S1 = Spot at time 1 V0= Value at time 0 f1 = futures at time 1 … etc. They both came out to almost zero after the hedge was subtracted so it looked right. Easy problem but with only about 5 seconds left, tough to write it all down.

s23dino Wrote: ------------------------------------------------------- > ^^^ O ok that is what I did but I didn’t get 9000 > contracts, for the futures though I took the > contract size of 100,000 and times it by the price > of like 115, i.e. pf *multipler? Everyone just did > the 100,000…? I did exactly the same. I think 100,000 is the contract size, and remember seeing 120 something and thinking it’s the price… Hope this is the way CFAI likes. : )

^^ probably not everyone seemed to like the 100k only

sean08 Wrote: ------------------------------------------------------- > s23dino Wrote: > -------------------------------------------------- > ----- > > ^^^ O ok that is what I did but I didn’t get > 9000 > > contracts, for the futures though I took the > > contract size of 100,000 and times it by the > price > > of like 115, i.e. pf *multipler? Everyone just > did > > the 100,000…? > > > I did exactly the same. I think 100,000 is the > contract size, and remember seeing 120 something > and thinking it’s the price… > Hope this is the way CFAI likes. : ) Same here. There was a contract size and a price so I used both to calculate how the futures changed. I don’t see how you couldn’t in order to calculate the MV change of the futures positions. I ended up with a small number of contracts, not 9000 or 7000. I have no idea if I did it right.

The price should not be relevant. If you had 1,000,000 and the futuers were 100,000 then you would have 10 contracts. If the price of each contract was 100 then 100*10 = $1000 is the amount it costs you to control 1MM of the underlying. So price is irrelevant i think for calculating the number of contracts.

You need prices to calculate MV changes in the futures position.