• Profile photo of John Moffat says

      It is hard for me to say any different then I say in the lecture.

      I assume that you realise that the reason that there are always two rates given is because the banks want to make a profit! Because of that we always use whichever of the two rates is worse for us – if we are paying money then it is whichever rates mean we pay most, if we are receiving money than it is whichever rate means we receive less.

      What I suggest you do is try one or two of the examples in the Course Notes. Try using both rates and decide which of the two rates must the correct one (whichever ends up being the worst for us).

      Once you have convinced yourself, then you need a rule for it (because in the exam you don’t want to waste time trying both rates). I explain in the lecture the rule that I use. However, it doesn’t matter what rule you use – whatever is easiest for you to remember. But if you convince yourself with a few examples which rate is the most sensible, then you should find it easier to either remember my rule, or to create a different rule that is suitable for you.

      • avatar says

        I think I have figured it out… I just need to look at it from the banks point of view. I have also done an acrostic to remember when to times and when to divide. I will do some more practice questions which I haven’t come across before and make sure I definitely have got the hang of it. Fingers crossed. Thank you John your a star! ????

    • Profile photo of hamzaharoon says

      @charlottecallaghanclarke A Trick for you:

      The exchange rate spread ( $ to Pound)
      1.6250 – 1.6310
      Buying – Selling
      Paying – Receiving

      As you can see, when you are RECEIVING money from a customer in foreign currency, you will need to SELL the foreign money you have received to the Bank, in order to get your home currency, Pounds. (Why? Because this is the currency you use in your home F/S.) But what rate will you use when SELLING? As a rule, you will only use the rate which is profitable to the Bank, i.e. the Higher rate, as shown above.

      Similarly, if you are PAYING money to a foreign supplier in the supplier’s currency, you will need to BUY the supplier’s currency from the Bank. What rate are you going to use when buying? You will use the rate which is profitable to the Bank. i.e. the LOWER rate.

      Imagine you are BUYING a cellphone quoted at $ 500 – 600 from a Supplier, and I told you that the ‘rule’ is that you will PAY the price that is profitable to the Supplier. Then you will obviously PAY $ 600. i.e. profitable to the supplier, not you.

      So in short, for easy recall, just remember,
      Lowest rate – Highest rate
      1.6250 – 1.6310
      B – S
      P – R

      BS and PR… or for easy memory, Balance Sheet and Public Relations.

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