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  1. avatar says

    The way I understand it is if we have an asset (which will be money coming in in 3 months time, we have to create a liability in the currency we will be receiving…..eg if we are expecting a payment 0f 300,000 pounds and we are in the US….if the pounds interest rate (borrowing) is 15% pa….we are going to borrow 289156.63…..(15/12 multiply by 3 = 3.75% – which is .0375 —-( 300,000 pounds divided by 1.0375 = 289156.63). We then convert to US at the spot rate and deposit for 3 months at the US deposit rate. At the end of the 3 months, we are owing exactly 300000 pounds.

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