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- This topic has 7 replies, 3 voices, and was last updated 4 years ago by John Moffat.
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- November 4, 2016 at 3:21 pm #347420
Hello Mr John,
In relation the answer of section a), I found that the interest rate parity is used.
Please kindly help me address why the spot rate here is 1.6244 instead of 1.6239?
I think Asteroid will remit 1.5 million Euros, hence, they need to sell Euro and buy SFr.
Then, they should use the bid rate (1.6239)? It means they buy SFr?Appreciate for your help.
November 4, 2016 at 6:22 pm #347474You have mis-read the second sentence of the question.
The Swiss business is remitting from Switzerland to Germany – so they need to buy Euros and sell Swiss francs.
November 6, 2016 at 3:01 am #347627I got it. Thank you very much.
November 6, 2016 at 8:15 am #347655You are welcome 🙂
July 10, 2020 at 12:49 pm #576510Dear Sir
The answers to this question reads “Exposure to transaction risk could be eliminated by entering into a forward contract to purchase Swiss francs…
If the subsidiary is purchasing EUR to remit, is this sentence above incorrect?
thanks
July 10, 2020 at 4:20 pm #576520I do not know which Revision Kit you are using (this question is not in either the current edition or the previous edition of the BPP Revision Kit).
I do however have the original question and the examiners answer, and it does not read as you have written it. What is in the examiners answer is not that they are purchasing Swiss Francs but says “the exposure to movements in the Swiss Franc can be eliminated by entering into a forward contract to purchase the currency at Euro SFr 1·6199”. Although it could have been better worded, the sentence does not specify which currency they are purchasing and it is Euros that they will be purchasing.
While writing, I imagine that the reason the question is not in the recent editions of the BPP Revision Kit is that it was written by the previous examiner (who did not remain examiner for long because he set some very ridiculous questions). One example in this particular question is the table giving the ‘closing mid-point’ etc.. Although it was valid to do this, the exam is more supposed to be testing the understanding of the ideas involved rather than testing on tables from the Financial Times. The current examiner (who has been the examiner since 2010) does not do this sort of thing.
July 10, 2020 at 10:35 pm #576530Dear Sir
Thank you for your response. By the way, I copied those extracted text from the BPP Practice and revision kit for exams from Sep 2015 to Aug 2016. I realized that the later versions no longer have these text.
July 11, 2020 at 8:50 am #576540You are welcome 🙂
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