[Sample exam 3 Q13] IRP

For pounds, I can use IRP to come up to forward pounds = 1.84 x (1.035/1.05) = 1.814 which can be rounded as 1.8. So there is no need to hedge pounds!! And same for euros. Foward euros = 1.2 x (1.035/1.045) = 1.189 which can be rounded as 1.19. So there is no need to hedge euros too (not because the implied forward euros is higher than expected)!!! That’s why I picked no hedging for both. @_@

No, NO sticky. The Euros you are correct because it was 1.189 which is yes 1.19 rounded very close. The Pound was 1.814 does not round to 1.80 it round sto 1.81. If I had 1,000 pounds, I would get 1,810 if I hedged vs 1,800 if I didnt. For the Euro I would get say 1,190 vs 1,189 very close. I guess its a test of inches and not yards :slight_smile: It was tricky, i’ll give you that.

sigh … that depends on how many decimal places you are rounding, right? But I agree provided 2 decimal places with euros, I should do the same thing for pounds and round it to 1.81, which is just/still larger than 1.8. I was simply having a false impression that the question is trying to provide forward rates that AGREE with IRP — which doesn’t need hedging. sigh … but thanks for the reply.

i always do max precision

lol…I was iffy on this one b/c of how close it was also, but went with the gut and luckily got it right.

that was stupid on their part to do it. They should release statement say results must be different up to thousand decimal place or whatever