Foreign Exchange Risk Management: Exchange rates

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1. 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.

• says

The lectures can only be watched online – they cannot be downloaded.

This is the only way that we can keep this website free of charge.

2. Thanks a lot opentution…..nw only i got it right. all these times it was confusing me n now i got d correct logic. Thanks again….

3. 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.

• 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.

• 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?

• 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.)

4. says

I think the easy way to remember is to think that we will always be at loss. So we choose the rate which costs us more or gives us less.. Is this okay?

• says

That’s fine. As long as you can get the correct rate to use quickly, then whatever way is easiest for you

5. 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.

• says

Which way round currencies are quoted differs between countries, and also between channels (e.g. the way the bank quotes is not necessarily the same way round as the way TV channels quote).
What is in the lecture is correct for the exam!

6. 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?

• 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.

• says

Many thanks Mr Moffat. It can get confusing at times (at least for me, it does), but your explanations are very clear, as always. I’ll stick with your method. Cheers!

• says

I agree that it is confusing (and thank you for the comments)

7. says

this video might just do the trick to finally understand foreign exchange

8. says

Awesome, I now totally understand it. I used to mix up the buying and selling rates between the bank and customer. It has been ironed out. Thanks O.T

9. says

This is a great lecture. I am now very much clear about the concept of buyinh and selling rates and how to use them…
Thanks.

10. says

Now the home,base and cross currency that I have learnt is much clearer. Until this I couldn’t get it right. Thanks

11. says

You really only get the beauty of this presentation when you have had to reverse engineer how some of the text books present this…

12. says

These letures on Chapter 17 are great! I watched all of them and they helped me enormously, so a HUGE thank you to Open Tuition!!!

13. says

You have ironed out the common errors that I have been making when converting the currencies.