INMUFIN Formula Sheet

The Foreign Exchange Market

Spot Dealing/ Transaction
1 + 2 = 3 ( )
Domestic and Foreign Prices
=
Currency Forward and Swap
Forward Rate
= 0

1 + ( )
1 + ( )

Forward Bid-Ask Rate

Forward Bid
1 + ( )
Forward Bid = [
]
1 + ( )
Forward Ask
1 + ( )
Forward Ask = [
]
1 + ( )
Premium and Discount

Annual Dev. of DC =

0
360

Annual Dev. of FC =

0
360

0

If:

Annual Dev. = +: Premium

Annual Dev. = : Discount

Outright Rate and Swap Rate

If the denominator of the swap rate is bigger:
Maturity:
Spot
Swap Rate
Forward Rate

Bid

Ask

Spot (Bid)
+ numerator
Forward (Bid)

Spot (Ask)
+ denominator
Forward (Ask)

If the numerator of the swap rate is bigger:

Maturity:
Spot
Swap Rate
Forward Rate

Bid
Spot (Bid)
numerator
Forward (Bid)

Ask
Spot (Ask)
denominator
Forward (Ask)

Spot vs Forward [Forward (Bid) is bigger]:

= ( 0 )(. 0 )
Spot vs Forward [Spot (Bid) is bigger]:
= (0 )(. )
Forward vs Forward
Let:

F30 and F60

Where F60 is bigger
= (60 30 )(. 30 )

Forward vs Forward
Let:

F30 and F60

Where F30 is bigger
= (30 60 )(. 60 )

NDFC (buy or receive dollars)

Let: period = 90 days
Payable: When Spot Ask rate on Maturity is less than Forward Ask
= (. 90 ) (. 90 )

Receivable: When Spot Ask rate on Maturity is more than Forward Ask
= (. 90 ) (. 90 )
NDFC (sell or pay dollars)
Let: period=90 days
Receivable: When Spot Bid Rate on Maturity is less than Forward Bid
= (. 90 ) (. 90 )
Payables: When Spot Bid Rate on Maturity is more than Forward Bid
= (. 90 ) (. 90 )
Derivatives: Options and Futures
Speculating in the Spot Market
= ( ) .

Option Contract
Contract Size = Strike Price x No. of Units
Premium Cost = Premium x No. of Units
Contract Value at S0 = S0 x No. of Units
Contract Value at S1 = S1 x No. of Units

PUT OPTION
Currency/No. of units:
Exercise/Strike Price:
Premium:
Maturity:
S0:

Decision Rule:
XP > S1 = ITM
XP < S1 = OTM
XP = S1 = ATM

Scenario on maturity date:

A. S1 =
B. S1 =

A. If S1 = ______ it is OTM (because, XP < S1 = OTM). The contract value at S1 in this scenario is ________.
Hedger
Speculator
Writer
Decision: Let the contract expire
Decision: Let the contract expire Decision: Keep the options fee
k=
I.V.= (XP S1) (# of units)
k=
=
=
k= I.V. Total Investment
=
=
IRR =

IRR = k/ Total investment

=
=

No Option
Decision: No Option
k= Selling price Purchase Price
k= S1 S0
=
=
k/unit =
=

IRR =

IRR = k/ Total investment

=
=

B. If S1 = _______ it is ITM (because, XP > S1 = ITM). The contract value at S1 in this scenario is _________.
Hedger
Speculator
Writer
Decision: Exercise the contract
Decision: Exercise the contract
Decision: To comply with the contract.
k= Selling price (Purchase Price + Prem) I.V.= (XP S1) (# of units)
k= (Selling price Purchase Price) + Prem
k= XP (S0 + Prem.)
k= (S1 XP) + Prem
=
=
=
=
=
=

No Option
Decision: No Option
k= Selling price Purchase Price
k= S1 S0
=
=

k/ unit =
=

k= I.V. Total Investment

=
=

k/unit =
=

k/unit =
=

IRR = k/ Total investment

=
=

IRR = k/ Total investment

=
=

IRR = k/ Total investment

=
=

IRR = k/ Total investment

=
=

CALL OPTION
Currency/No. of units:
Exercise/Strike Price:
Premium:
Maturity:
S0:

Decision Rule:
S1 > XP = ITM
S1 < XP = OTM
S1 = XP = ATM

Scenario on maturity date:

A. S1 =
B. S1 =

A. If S1 = _______ it is ITM (because, S1 > XP = ITM). The contract value at S1 in this scenario is ________.
Owner, Holder or Buyer
Writer, Grantor, Seller
Hedger
Speculator
Naked
Covered
Decision: Exercise the contract
Decision: Exercise the contract
Decision: To comply with the contract
Decision: To comply with the contract
k= Selling price (Purchase Price + Prem)
I.V.= (S1 XP) (# of units)
k= (Selling price Purchase Price) + Prem k= (Selling price Purchase Price) + Prem
k= S1 (XP + Prem)
k= (XP S1) + Prem
k= (S1 XP) + Prem
=
=
=
=
=
=
=
=
k/ unit =
=

k= I.V. Total Investment

=
=

k/unit =
=

k/unit =
=

IRR = k/ Total investment

=
=

IRR = k/ Total investment

=
=

IRR = k/ Total investment

=
=

IRR = k/ Total investment

=
=

B. If S1 = _______ it is OTM (because, S1 < XP = OTM). The contract value at S1 in this scenario is ________.
Owner, Holder or Buyer
Writer, Grantor, Seller
Hedger
Speculator
Naked
Covered
Decision: Let the contract expire
Decision: Let the contract expire Decision: Keep the options fee
Decision: Sell position in the market
k=
I.V.= (S1 XP) (# of units)
k=
k= (Selling price Purchase Price) + Prem
k= (S1 S0) + Prem
=
=
=
=
k= I.V. Total Investment
=
=
IRR =

IRR = k/ Total investment

=
=

k/unit =
=

IRR =

IRR = k/ Total investment

=
=