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How to recognize domestic and foreign currency
AFM
answered on 31-May-24 20:37
Hi sir, How did we recognize UK interest rate is domestic interest rate in this question ? In question they did not mentioned we are UK residents right. Is it because it is high interest rate ? Should we take high interest rate as Domestic interest rate ? What is the basis of the same ?
latest answer
Mostly yes. because most of the currencies are quoted against dollar like that barring a few exceptions like GBP, EUR, NZD & AUD
B. Dinesh
CA Final
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445
Forward points in case of discount
AFM
answered on 29-May-24 10:04
Hi Sir, If Spot is 80/80.30 and forward price is 79.10 / 79.35. Here it is a discount and forward points are 90/95. But as per what you said if Bid < Ask , we should assume it as Premium. But in this case Bid < Ask and it is discount. How to interpret whether it is premium / discount in this kind of situations ?
latest answer
Very unlikely the INR will be at spot of 80/80.30 and forward price of 79.10 / 79.35. Such situations will not arise if it is currency is trading at a discount , that will reflect in forward points too
B. Dinesh
CA Final
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357
Clarification
AFM
answered on 29-May-24 09:43
Hi Sir, Based on the previous problem i.e. INR ZAR i formed a formula to calculate the cross rates. The formula is : For Bid Price: Selling price of the quote currency / Buying price of Base currency and for Ask Price : Buying price of Quote currency / Selling price of Base currency. Explanation of the formula : The Bid price of INR ZAR means Bank will buy INR and sell ZAR. The rate should be per unit of INR, Buying rate of INR should be in denominator and Selling rate of ZAR should be on numerator. so the formula will be Selling rate of Quote Currency/ Buying rate of Base currency. Eg : USD INR - 75.3510, 75.4779 & USD ZAR - 15.7760 & 15.7890. Selling rate of Quote currency in INR ZAR means, Selling rate of ZAR i.e.15.7760(buying rate of USD ZAR means buying of USD and selling of ZAR so selling rate oof ZAR is 15.7760), and buying rate of base currency in INR ZAR is Buying rate of INR i.e. 75.4779( USD INR ask rate means selling USD and buying INR, so INR Buying rate is 75.4779). So the bid rate of INR ZAR = 15.7760/75.4779 = 0.2090. I have applied this formula to some live data as well. it holds good in every case, but in this example i.e. EUR GBP the answer is not coming. Can you please explain what is wrong in the formula sir ? Attaching some of the live data illustrations excel sheet using the formula for your reference. please let me know what is wrong in my logic.
latest answer
Pls find attached the solution
B. Dinesh
CA Final
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535
Solution to the mcq
AFM
answered on 27-May-24 10:01
Solution to the below attached mcq
latest answer
Pls share your working and where you have a doubt?
MATURU HAMSA GAYATRI
CA Final
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371
ill-23
AFM
answered on 28-May-24 09:54
what is the difference between ill21 and ill23 ? in ill21 P/E-7.5 the retained earning being 37.5% is rs 3 so in that we found eps as 8 but in ill23 P/E-8 the co retains 50% 0f earnings rs10 , in this case we took EPS as 10 why not 100*10/50 eps is 20 . whether this may silly question but while doing sum i worked out eps 20 then in vedio its different .
latest answer
You have to read question carefully.
HEMAVATHYSUBRAMANI SUBRAMANI
CA Final
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3
331
Advanced Capital Budgeting Decisions, Illustration 26
AFM
answered on 26-May-24 16:19
It was mentioned that acceptable level of risk is 20%, can we assume that IRR is 20% assuming that management doesn't accept any negative NPV.
latest answer
No what I have done in last 2-3 minutes is only right Risk is not disc rate
Raviteja Kusumanchi
Qualified CA
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496
What if we settle through delivery ?
AFM
answered on 26-May-24 16:09
Hi sir, Since they did not say anything if we assume he is already having the rice with him on day zero itself. And he wants to sell it after 3 months, so he entered into future @ 59 per kg. then on the date of maturity he will sell deliver the Rice and receives the money 59 per kg. Then he make profit of 2rs( spot of 57 and sale price of 59) right ?
latest answer
Yes
B. Dinesh
CA Final
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1
390
Buyer and seller of commodity derivative
AFM
answered on 28-May-24 14:42
Hi sir, In class you said Buyer of the commodity derivative deposits the Margin and Seller of the commodity market Accepts the margin. But the picture in the background states otherwise i.e Seller deposits Margin and buyer accepts the margin . please let me know which is correct. attaching the picture here for your reference
latest answer
Updated the video - thanks for highlighting
B. Dinesh
CA Final
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325
American option is greater than European Option
AFM
answered on 25-May-24 22:26
Hi sir, the question we solved is American put option(Abandonment option) and the value of the option is 52.7 million atleast.i will tell what i understood by the word "atleast" , please correct me if iam wrong. Normally BSM is used to compute European options value, here we used that even though it is an american option. So in European option value computing method i.e. BSM itself we are getting the option value as 52.7 million, in american option value computing method i.e. Binomial we will definitely get the option value more than 52.7 million. That's why we used "atleast"
latest answer
yes 100% right
B. Dinesh
CA Final
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466
Dividend treatment in Black scholes formula
AFM
answered on 25-May-24 20:11
Hi sir, in this question you said if there is a dividend it will get adjusted at two places i.e. In call option value formula at 'Spot' value and in d1 formula at 'r'. But in previous question no. 22 part 4, you said just to adjust the spot with PV of dividend and use the normal formula. by doing this we are giving the effect in Call option formula same as above. But the 2nd effect in d1 is not provided here na. Why is this sir ? Is it bcz its real options ?
latest answer
Ideally dividend should be adjusted at both places. ICAI has chosen to follow this weird method of adjusting dividend with spot in case of normal options and in both places in real options. They come up with their own explanations and interpretations
B. Dinesh
CA Final
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456