1. Profile photo of fahim231 says

    Hello sir can you please help me with the following – are forward rate agreements the same as future contracts? and what does it mean when it is quoted like this 6V9 – 7•30 – 7.00%

    • Profile photo of John Moffat says

      No – FRA’s are not the same as futures.

      You have asked this below a lecture on foreign exchange risk management, whereas FRA’s relate to interest rate risk management (and are dealt with in those lectures!).

      It is where the bank will fix an interest rate today for a loan or deposit starting on a future date.

      In your example, it means that for a loan starting in 6 months time and finishing in 9 months time (i.e. a 3 month loan) they offer fixed interest of 7.00% per year on deposits and charge interest of 7.30% on loans.

  2. Profile photo of sogan0 says

    Okay here is another silly question well there isnt right. We in UK we need to receive $ therefore inorder for us to receive $ im in the bank what do i do sell or buy pounds? On the other hand if we need to pay$ we need to buy $ therefore we have to sell pounds in order to buy $. What is the rule here? Im imagining myself at the bank to pay $ and what i would do over the counter in the bank.

  3. Profile photo of sogan0 says

    Hi I still get confused when to multiply or when to divide i know which exchange rate to use but not sure whther to divide or sell

    Am i right by saying if you need to calculate the first currency you multiply and if you need to calculate the second currency you divide?

  4. avatar says

    I want to specially thank you for the video lectures uploaded. But at the same time, I will like you to give instructions on downloading these video lectures so that one can watch them over and over again even when there is no internet access.

  5. Profile photo of karmuks says

    I am sorry if do not understand something. But in example after example 1 the second example where we sell GBP 1,493,250.00 and get for it only Euro 500,000.00? Please explain if I am missing something.

    • Profile photo of John Moffat says

      I am not sure what the problem you are having is.

      The exchange rate given is £/Eur 2.9865

      This means that 2.9865 £’s are equal to 1 EUR. The way rates are quoted in the exam is that 2.9865 of the first quoted currency (here £’s) = 1 of the second quoted currency (here Euros).

      So 2 EUR = 2 x 2.9865 £’s and so on.

      So 500,000 EUR = 500,000 x 2.9865 £’s = GBP 1493250

      What might be confusing you is that often on the TV etc, they quote rates differently, but the rule in the exam is that above.

      Also, of course the rate I have given is not realistic (at the moment!) but in the exam obviously you use whatever rate you are given.

      • Profile photo of karmuks says

        The way showed how to calculate exchange for me seems correct and understandable. What confuses me is that 1 euro is worth more than 1 pound. Or I should not pay attention to it?

      • Profile photo of John Moffat says

        As I said in my previous reply, the exchange rate used is nothing like the current exchange rate. However in the exam you use whatever exchange rate is given to you.

        (At present 1 Euro is worth less than 1 pound, but that might not always be the case, and there are certainly other currencies that are worth more than 1 pound.)

  6. avatar says

    Sorry I forgot to add that usually all currencies are quoted against USD except the “Queen’s curriencies” i.e. GBP, AUSD, NZD etc. and also the Euro that are quoted as base currencies therefore instead of $/£ (as shown in the example) we would have GBPUSD (£/$) pair – therefore it would correctly be 1.6 USD for every 1 GBP.

    I think. But I could be wrong.

  7. avatar says

    I’ve read everywhere else that the currency quotes are always: 1 of base currency (i.e. $ in this case) to however much of the counter currency (i.e £1.6 in the above example). Here the lecturer says it is the other way around.

    Forgive me but am I missing something?

    • Profile photo of John Moffat says

      The lecture makes it clear and is correct.
      In practice there are always 2 ways of quoting exchange rates – there is no ‘official’ way of quoting them (even though most quote against their own currency.

      However in the exam, if it is (for example) a $/£ quote, then it is giving the number of $’s that equal 1 £
      Similarly if it is a EUR/$ quote, then it is giving the number of EUR that equal 1 $

      I am only concerned about helping people to pass the exam, and in the exam the quotes are always as above (and as per the lecture) unless, obviously, you are told different.

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