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Dear sir, i have a query about business risk.
My question is that in a question like this how do you decide which currency is the first currency, is it the currency to which the company belongs?QS) A canadian company i expecting to receive kuwaiti dinars in one year’s time. The spot rate is dollar 5.4670 per 1 dinar.
Which currency is the first currency and why?
ThankyouThis has nothing to do with business risk – if anything it relates to foreign exchange risk management 🙂
If by ‘first currency’ you are referring to the way I explain how to use exchange rates in my lectures, then since the rate is 5.4670 dollars to 1 dinar, then the quote is $/dinar 5.4670 and therefore using my explanations in my lectures $’s are the ‘first currency’.
Thankyou so much! Yes its fireign exhange risk. Everything just getting muddled up.
Could you please also tell in what case would reserves not count as equity?
In the bpp kit, just before the answers page we have a question asking for market value based gearing (prior charge capital/equity)?
In the answer to that question they have not included reserves as part of equity.When using figures from the SOFP, then equity is the total of share capital and all the reserves.
When using market values, then the market value of equity is the full value – we don’t add on the reserves (the most obvious reason for the market value being higher than the nominal value is because of the reserves!!).
Again, I explain this in detail in my free lectures. The lectures are a complete free course and cover everything needed to be able to pass the exam well. Please do watch them, because you can’t expect me to type them all out here 🙂
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