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October 27, 2015 at 6:52 pm
Sir please help me with this…! your lectures were very clean and clear,but when it comes with a different currency its very very confusing…. i just don’t know what to borrow and what to deposit and also from where to borrow?? haha please read the question and make me understand this..thanx in advance
A company whose home currency is the dollar ($) expects to receive 500,000 pesos in six months’ time from a
customer in a foreign country. The following interest rates and exchange rates are available to the company:
Spot rate 15·00 peso per $
Six-month forward rate 15·30 peso per $
Home country Foreign country
Borrowing interest rate 4% per year 8% per year
Deposit interest rate 3% per year 6% per year
Working to the nearest $100, what is the six-month dollar value of the expected receipt using a money-market
John Moffat says
October 27, 2015 at 6:53 pm
You must please ask this sort of question in the Ask the Tutor Forum, and not as a comment on a lecture.
October 27, 2015 at 7:05 pm
so grateful for you’r quick response.
thank you sir
October 27, 2015 at 6:24 pm
sir,could you explain me in money market hedge,say if we are receiving pesos and home country is US,in which currency are we borrowing?? say we are receiving 500,000 pesos in six months..so are we borrowing in pesos if so what rate do we have to apply,i mean is it home country’s borrowing rate or foreign country’s borrowing rate.., its very confusing!!
October 27, 2015 at 6:34 pm
If we are receiving pesos on a future date, then we borrow pesos now (at the peso interest rate), so that we can convert to $’s now (at the current spot rate) and then invest the $’s at the $ interest rate,
When we actually receive the pesos, we use them to repay the peso borrowing.
At the same time, the $ deposit matures, so we receive $’s.
October 27, 2015 at 7:03 pm
so,that means we are always borrowing and depositing what we are receiving/paying in future applying the interest rates depending on the currencies we are borrowing and depositing.. is that correct???
October 27, 2015 at 7:08 pm
That is correct
September 5, 2015 at 5:01 pm
I tend to believe that this tutor has an astonishingly excellent understanding of what he is teaching. Maybe this is not because he studied well but more importantly he has real life experience of everything…………….Thank you so much for delivering such a masterpiece video…………..
September 5, 2015 at 5:03 pm
Thank you for your comment
May 31, 2015 at 6:05 pm
You are a brilliant tutor, I have never got in until now. Thank you so much. I am so glad I discovered this website!
May 31, 2015 at 6:43 pm
(I hope you will recommend us to your colleagues!)
May 25, 2015 at 10:47 pm
Wanted to ask that the discount or premium offered is considered only for forward contracts or money market hedge??
November 6, 2014 at 9:04 pm
You are the best, great lecture
October 15, 2014 at 10:27 am
Sir what about PYQ DEC2008 Q4 C) why is the 16m not taken into account when calculating the deposits?
October 15, 2014 at 11:06 am
It was not asked for. Part (c) asked you only to consider the future payment that will be made.
October 15, 2014 at 11:29 am
thanks alot was confused earlier 😀 did not read the question properly 😀
May 7, 2014 at 2:28 pm
What a Great Lecture! Love You Sir John <3
I have 1 Question to ask, The Interest Rate for 3 Months you calculated 1.45%, Instead of writing 0.0145 (1.45/100) why you wrote 1.0145? similarly in 0.9% interest rate you wrote 1.009 instead of 0.009? it is a rule that you add 1 to every interest rate or am I missing something?
May 7, 2014 at 2:32 pm
Multiplying by (say) 1.01 is the same as adding on 1%. Multiplying by 1.02 is the same as adding 2%, and so on
May 7, 2014 at 2:52 pm
OH! Now I got it, Thanks 😀
April 25, 2014 at 1:50 am
Query: When i calculated my interest for the 3 months it was 0.9% (3.6* 3/12)….
I am not clear why it is that when you were calculating the interest it was 3,194,954 x 1.009 and not 3,194,954 x 1.09.
April 25, 2014 at 9:41 am
10% = 0.1
9% = 0.09
0.9% = 0.009
December 3, 2013 at 10:57 pm
Refer to the recent Mock Exam Questions, Q1.
Where redeemable debt was being mentioned as repayable at 10% premium after 10 years?
December 4, 2013 at 7:16 am
It was not – it was an error and I will have it corrected. You would assume that it was repayable at par.
December 5, 2013 at 6:11 am
Thanks a lot!
November 7, 2013 at 12:29 pm
just one query !
when we hedge a receipt , in the third step, when we multiply £ 3194954 with the interest rate we get £3223709. this amount is greater than what we require, the extra is the interest we received right? so why don’t we deposit an amount which after adding the interest becomes £ 3194954 ?? ie by dividing the amount by the interest rate ??
November 7, 2013 at 12:59 pm
You have asked this question on Ask the Tutor, and I have just answered it there.
(We don’t have a specific requirement for receipt of pounds)
November 7, 2013 at 5:25 pm
Yes I saw it , Thank you soo very much!!! I can finally move to the next topic. The lectures n the website are amazing. Thanks again !
November 7, 2013 at 5:42 pm
Great (and thank you!)
April 11, 2013 at 8:03 pm
Thanks for all the efforts put into these lectures and all other resources provided by open tuition. God bless!
November 11, 2012 at 11:05 pm
sir….u said that lower interest rate is used for when you are borrowing money and higher when you are depositing money…so in example 6 instead of using 5.2% you used 5.8%…can you explain why? or is it am i understanding this wrong…thank you
October 16, 2012 at 1:56 pm
I just love this man
June 4, 2012 at 10:19 pm
Thank you was a great lecture , could not understand a thing in the text book.
May 21, 2012 at 9:16 pm
I am now 31 years old….I have done only 6 subject…am I too old to get a training job? I am confused…
April 21, 2012 at 3:39 am
you’re simply too good with facts & number…I love you man!
April 5, 2012 at 11:37 am
i can not hear it plz help me?
April 5, 2012 at 2:12 pm
well, shall we make you an appointment with Otolaryngologist? 😀
December 4, 2011 at 4:21 pm
if i get a chance i would kiss you …………..
jokes apart……… want to see knighted by the queen of england……………..u r a boon to students……guess what… i pay and get sub standard lectures…………………
December 4, 2011 at 5:01 pm
Well, after exam, get to work 😉 I’m sure John would be surprised haha 😉
Good luck in December exams 😉
December 4, 2011 at 3:39 pm
you can actually find the forward rate if u have the interest rates of the two countries…..:P
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