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Sir in part (a) for kenduri co. for money market calculation there is a 2.4million net payment by kenduri co ( who is based in uk) to Lakama(based in US) , my issue is that the examiner has used the Dollar Investing rate to find PV of dollars to be converted, i dont get this , I had watched your lectures and to find present value of dollars to borrow , we had always taken the Borrow rate Of US PRIME
Good day Farooque,
You need to make a distinction between when a company is buying the foreign currency (paying a creditor abroad in forex) and when he is selling a foreign currency (receiving forex from a debtor abroad.
The choice of the bid or offer rate depends on whether the company is buying or selling the base currency. In this quote $/£, pounds is the base currency.
John Moffat has done excellent lectures on how to know what rate to use in the beginning lecture videos of F9 and P4. Do well to go back to them now.
You cannot achieve much with forwards, futures, options and swaps if you do not master this basic issue.
Regards,
I have infact made a mistake in understanding the question actually, its a payment hence an investment is required of $’s , sorry my bad
eadinnu: Than you for your answer (and your nice comments 🙂 ) but please do not answer in this forum because it is Ask the Tutor (but please do help students in the other P4 forum 🙂 )
Muslim Farooque: No problem
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