# Foreign Exchange Risk Management: Exchange rates

 View all ACCA Paper P4 lectures >> This P4 lecture is based on OpenTuition course notes view/download here>>

1. 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%

• 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. 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.

• says

If you receive \$’s from a customer, then you will sell the \$’s to the bank and receive £’s from the bank (same a buying £’s from the bank and paying for them in \$’s)

• says

so if you need to pay \$ then u buy pounds from the bank?

• says

No – why would you want to buy GBP’s if you are in the UK and need to pay \$’s??

If you need to pay \$’s then you will buy \$’s from the bank which means selling GBP’s to the bank.

3. 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?