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PZK Co, whose home currency is the dollar, trades regularly with customers in a number of different countries. The
company expects to receive €1,200,000 in six months’ time from a foreign customer. Current exchange rates in the
home country of PZK Co are as follows:Spot exchange rate: 4·1780–4·2080 euros per $
Six-month forward exchange rate: 4·2302–4·2606 euros per $
Twelve-month forward exchange rate: 4·2825–4·3132 euros per $Am I right in reading this that 4.1780 Euro = $1.00 as this is what is stated on the question.
Therefore the €1200000 receipt is multiplied by 4.1780 for a spot conversion say and 4.2302 for a six forward.in the answer however, these are being divided not multiplied.
I have seen the lectures where its quoted say £/$ 1.1710-1.8954 (example) and $1 = £1.710 etc. but I am not sure on how the PZK question is writing this?
Hello buddy… the amount you are receiving is in euro and the rates are also in euros… as it says 4.2606 euros per dollar… it means 4.2 dollars equals to one dollar …… if you multiply it it will make the currency euro(square) that is why it is being divided so that euro cancels each other and the amount will be in dollars
jehangir: Please do not answer in this forum – it is Ask the Tutor, and you are not the tutor.
(And since he said to ignore the question anyway, I do not know why you bothered 🙂 )dear tutor,
i have similar question with gonko.
i don’t know why the answer will be divided by 4·2080 and 4·2606. why the answer isn’t divided into 4·1780 and 4·2302?
am i misunderstanding the following exchange rate?
eur4·1780=usd4·2080
eur4·2302=usd4·2606
thank you!You are misunderstanding the exchange rates.
4.1780 is the exchange rate if they are buying euros, 4.2080 is the rate if they are selling euros. Here they are selling euros (to convert into $’s) and therefore we divide by 4.2080.
I do suggest that you watch my free lectures on this where I explain the way exchange rates are quoted, and how to deal with them.
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