Comments

  1. Profile photo of aurore says

    Hello,

    I seem to be having an issue with the spot rate to choose.
    In this example, don’t we need to sell dollar when calculating the (now)value in pounds?

    Please do advise me. I did get previous work examples right so I am a bit confused here.

  2. 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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