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Dear Mr Moffat
Thank you so much for the clarity of your lectures- they are really helpful and ive made a donation to open tuition 🙂
I wanted to ask you to clarify the topic of spot exchange rates and adding/subtracting differences as I seem to be getting confused which rates to use (the higher/lower rate). Why is there two rates and on which basis do you decide which rate to use to convert the amount?
I look forward to hearing from you
Best wishes
FradelThank you for your comment and for your donation.
The reason two rates are quoted is so that the banks can make a profit – the profit by charging one rate when they sell currencies and a different rate when they buy currencies.
As to which rate to use, it depends on which way round the exchange rate is quoted which makes it impossible to give you a full rule here (but I do explain in detail with examples in the first lecture on foreign exchange risk management). However the rate to use is always whichever is worse for the company (i.e. results in the biggest amount if they are paying out, or results in the lowest amount if they are receiving).
Do please watch the lectures on foreign exchange risk management 🙂
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