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Diano plc is a company based in Ghana that trades frequently with companies in the UK.
The national currency of Ghana is the Cedi (GHC).
Diano plc has to pay 2.8 m pounds to UK
GHC / pounds
3 month forward 5.5880 – 5.6190
the question states : show the outcome using forward contract
solution :
since ghana is the base country, do you need to reverse the 3 months forward rate to
pounds/ GHCin the marking scheme it just did 2.8 x 5.6190 = GHC 15,733,200
i reversed the forward rate and made it pounds/GHC because Diano plc is currently based in Ghana.
i would like to know sir whether my approach is wrong please.
thank you so much
You can restate the exchange rate and you would get the same answer.
But there is no need to. If you are selling GHC (which you are, to buy pounds) then you used 5.1690, and it is then easier to of what the answer does.
(Incidentally you headed the post “currency options” but these are not options, they are forward rates)
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