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Answer: AUD 4,252
## Explanation To calculate the mark-to-market value of the forward position, we need to: 1. **Calculate the current forward rate** using the spot rate and forward points 2. **Discount the difference** between the current forward rate and the original forward rate **Step 1: Calculate current forward rate** - Spot rate (bid/ask): 1.1483 / 1.1484 AUD/SGD - 3-month points: 25 / 30 - Since the investor is long SGD (bought SGD forward), we use the ask side - Current forward rate = Spot ask + Forward points ask = 1.1484 + 0.0030 = 1.1514 AUD/SGD **Step 2: Calculate the difference in forward rates** - Original forward rate: 1.1465 AUD/SGD - Current forward rate: 1.1514 AUD/SGD - Difference per SGD: 1.1514 - 1.1465 = 0.0049 AUD/SGD - Total difference for 1 million SGD: 1,000,000 × 0.0049 = AUD 4,900 **Step 3: Discount to present value** - Since we're 3 months from settlement, we need to discount using the appropriate interest rate - The investor is long SGD, so we use SGD interest rate (3.50% annualized) - Discount factor = 1 / (1 + (0.035 × 90/360)) = 1 / (1 + 0.00875) = 1 / 1.00875 = 0.9913 **Step 4: Calculate MTM value** - MTM = AUD 4,900 × 0.9913 = AUD 4,857.37 The closest answer is **AUD 4,845** (Option C).
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An investor bought 1 million Singapore Dollars (SGD) at an all-in forward price of 1.1465 AUD/SGD (1.1465 Australian Dollars (AUD) per 1 SGD). Three months prior to the settlement date, the investor wants to mark-to-market this forward position. The investor has the following information:
The mark-to-market value of the forward position three months prior to settlement date is closest to:
A
AUD 4,252
B
AUD 4,300
C
AUD 4,845
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