# Sources of Finance: Rights Issue

1. says

Dear Mr Moffat,

And I do not understand this multiple choice questiostion too:

The current spot rate for the US dollar the UK Pound is \$/Pound 1.3821 – 1.3925, and the one month forward rate is \$/Pound 1.3832 – 1.4001.

A UK importer expects to have to pay \$800 000 in 3 months time. If he uses the forward market, how much does he expect po pay in UK Pounds?

How can I calculate three month forward rate from one month forward rate?
Please explain this question with worklings.

Best regards

• says

As stated on the instruction page before the test, you must ask these questions in the F9 Ask the Tutor Forum (and not as comments on a lecture).

2. says

Dear Mr Moffat,

I do not understand this multiple choice question:

The share price of CP plc is \$4 per share.
They announce a 1 for 5 rights issue at \$3.10 per share.

What % of the rights offered to a shareholder does the shareholder need to take up so as to have no net cash flow resulting from the issue?

I can not gess how to arrive to this answer.
Please explain this question with worklings.

Best regards

• says

I assume you are referring to the part (iii) that I added to the example in the notes.

Ilze currently has 2,000 shares. There is a 1 for 4 rights issue, and therefore she will be entitled to buy 1/4 x 2000 = 500 new shares.

(I assume that you have watched the main lectures (and not just the revision lectures), If you haven’t then I think you will find them useful.)

3. says

Hi Jhon,

Could you please explain me why do we take the rights for \$3 and then sell it for \$1,20. what is the logic behind this.

• says

We either take up the rights (and pay \$3) or we sell the rights (and receive \$1.20 for them).

We do not do both!If we sell the rights, we will be able to sell them for the difference between the ex-rights price of 4.20 and the price that the person buying the rights from us would have to pay to take them up (\$3). So we will be able to sell them for \$1.20.

• says

OK! Thanks very much Sir!

4. says

Hi John,

I need some help in terms of understanding of process of when a company raise fund, investments, i.e. right issue in order to complete an expansion . I am referring to Q1 for Dec 08 here. I find it difficult allocate all the information in the right place in my mind when reading a question like this. Any tips? At work right now hence have not watched this video yet. Many thanks, Jing

• says

It is difficult for me to help when I am not quite sure what your problem is.
Best is to watch the lecture, and then to ask if it is not clear.