What statements are correct? If you disagree with one or more of them, please put them right.

Question:

(a) Margin is a payment to the bank to compensate it for taking on credit risk.

(b) If you hold a forward purchase contract for jpy that you wish to reverse, and the jpy has increased in value, you owe the bank the discounted difference between the current forward rate and the historic forward rate, that is, the market value.

(c) If the balance in your margin account is not sufficient to cover the losses on your forward contract and you fail to post additional margin, the bank must speculate in order to recover the losses.

(d) Under the system of daily recontracting, the value of an outstanding forward contract is recomputed every day. If the forward rate for gbp/nzd drops each day for ten days until the forward contract expires, the purchaser of nzd forward must pay the forward seller of nzd the market value of the contract for each of those ten days. If the purchaser cannot pay, the bank seizes his or her margin.

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International Finance Putting Theory Into Practice

ISBN: 978-0691136677

1st edition

Authors: Piet Sercu

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Question Posted: Aug 07, 2017 09:43 AM

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What statements are correct? If you disagree with one or more of them, please put them right.

Question:

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a Margin is not a payment it is a security ...View the full answer

International Finance Putting Theory Into Practice

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