For that part, Alternative 1- the forward rate of $ is overvalued (because it should have been 0.706 but it is 0.85), therefore the spot rate of $ is undervalued. We should buy $ spot and to buy it we will need £ so it is borrowed. Solve the sum with normal covered interest arbitrage steps (BSIF- boRead more
For that part,
Alternative 1– the forward rate of $ is overvalued (because it should have been 0.706 but it is 0.85), therefore the spot rate of $ is undervalued.
We should buy $ spot and to buy it we will need £ so it is borrowed.
Solve the sum with normal covered interest arbitrage steps (BSIF- borrow £, sell £ spot to get $, invest $, forward sell $ to convert into £), if inflow> outflow there is arbitrage gain.
Alternative 2- Do arbitrage calculations in rough, option 1: by first borrowing £ or option 2: by first borrowing $, whichever of the two gives arbitrage gain, show steps for that option.
We have to assume that we have borrowed £ 1,00,000 and give a note at the end that any other amount can be assumed and ans will change accordingly.
Also this ques is explained by sir in this video on youtube “CA Final SFM | Challenger Series | Class 4 | LIVE | Sanjay Saraf Sir | SSEI LIVE”
When exponent value is not given in ques., the formula to calculate the same is 2/n, where n is the no. of days. Hence, it's calculated as 2/50= 0.04. Hope it helps, thanks!
When exponent value is not given in ques., the formula to calculate the same is 2/n, where n is the no. of days. Hence, it’s calculated as 2/50= 0.04. Hope it helps, thanks!
Direct tax- RTP May’21- Case scenario 1
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For that part, Alternative 1- the forward rate of $ is overvalued (because it should have been 0.706 but it is 0.85), therefore the spot rate of $ is undervalued. We should buy $ spot and to buy it we will need £ so it is borrowed. Solve the sum with normal covered interest arbitrage steps (BSIF- boRead more
For that part,
Alternative 1– the forward rate of $ is overvalued (because it should have been 0.706 but it is 0.85), therefore the spot rate of $ is undervalued.
We should buy $ spot and to buy it we will need £ so it is borrowed.
Solve the sum with normal covered interest arbitrage steps (BSIF- borrow £, sell £ spot to get $, invest $, forward sell $ to convert into £), if inflow> outflow there is arbitrage gain.
Alternative 2- Do arbitrage calculations in rough, option 1: by first borrowing £ or option 2: by first borrowing $, whichever of the two gives arbitrage gain, show steps for that option.
We have to assume that we have borrowed £ 1,00,000 and give a note at the end that any other amount can be assumed and ans will change accordingly.
Also this ques is explained by sir in this video on youtube “CA Final SFM | Challenger Series | Class 4 | LIVE | Sanjay Saraf Sir | SSEI LIVE”
Hope it helps, thanks!
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When exponent value is not given in ques., the formula to calculate the same is 2/n, where n is the no. of days. Hence, it's calculated as 2/50= 0.04. Hope it helps, thanks!
When exponent value is not given in ques., the formula to calculate the same is 2/n, where n is the no. of days. Hence, it’s calculated as 2/50= 0.04. Hope it helps, thanks!
See less