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ACCA F9 Revision December 2009, Question 3: Rights issue, EPS and foreign exchange
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@Johnmoffat: The investment operations are in eur; debt is in eur; isn’t the real mismatch between the equity (we need to repay dividends in dollars) and the operations earnings, which are in eur? pls advise.
But that is the whole purpose of looking at ways of hedging the risk in part (d) of the question.
Shouldn’t it be EUR 6.5MN x 1.3 = 8.45MN USD?
@vesna, No – the spot rate is EUR/$ 1.3, which means that 1.3 Euros = 1 $
Bit confused…how can 13M euro is equal to 10M dollar….it should be other way round….
@mdnadeem, No it should not be the other way round. The spot rate is EUR/$ 1.3 which means that 1.3 Euros = 1 $
Dear Sir,
Sorry to bother again. Could you just clarify – when you do the money markets illustration you used the annual interest figure against the 6 month interest which was calculated from before ie the EUR 260000. Should the interest rate be divided by two when doing the six month illustration. The figures calculated are different from the examiners answer, whereby they have calculated the 6 month interest rate in an extremely weird way by raising to power 5. Look forward to your reply.
Dear Sir, The answer although stated as 12 months is in fact for 6 months, unless I have mistaken something as at the interest payable calculation you have divided by 2 for a 6 month interest charge. Furthermore then follow-on calculations should have been done at the half year interest rates. Am I correct?
@rajb19, The question asks you to illustrate. There is an interest payment due in 6 months time and another one in 12 months time.
You could use either to illustrate – I have used the interest payment due in 6 months time.
(But if you look at the examiners answer, he does the 6 month payment, but also says it would be just as acceptable to consider the interest due in 12 months instead)
Got to be honest I found this one really tough and if this comes up I will be done for.