S2000 Mock #2 - Q4-Bi

CFA Level III Portfolio Management
#1

Would post a copy of the question - but don’t want to breach copyright.

For anyone who has bought the mocks, could someone explain why we use the midpoint of the bid and ask to calculate the net payment on the expiring forward contract? The question asks the net amount paid/received on the expiration of the existing forward, why does the new forward come into the calculation?

Shouldn’t it just be that we have to buy 5M EUR at the ask to fill the expired forward?

#2

According to the Level III CFA curriculum, when you roll over an FX forward, both legs of the matched portion are priced using the midquote (plus the appropriate (bid or ask) forward points as applicable).