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Hello.Lets say I have R13.50/$,is this the same thing as $/R13.50?,i just understand better when i make the other currency a base currency.Number two, is the difference between BID:R8.6040/EUR ASK:R8.6643/EUR to R/EUR8.6040-8.6643?,when we dealing with both spot rate and forward rate?.Please give me a linke where you explain cross rates because i don’t see them on the lecture notes.Thank you in advance.
Here is the example for arbitrage opportunity with cross rates….The following exchange rates have been obtained from Goldman Sachs in New York EUR0.9351/USD and USD1.2587/GBP. Citibank is quoting a cross-rate of EUR1.1780/GBP. Is there an arbitrage opportunity here? And if so, show how you would profit from this if you have $1million…I have bought the GBP at EUR1.1770 and sold it at EUR1.1780(I multiplied EUR 0.9351* USD1.2587)and multiplied with USD1 milliont.I’M I correct,the logic?.
Sorry i did not see the ask the Tutor Forum.As far as the exam is concerned, they are not the same. R13.50/$ means the 1$ converts to 13.50 Rs.. Exchange rates in the exam are normally quoted in the second way – $/R 13.50, and this would mean that 1 Rs converts to 13.5$’s
I do explain this in my free lectures.With regard to you second question, what you have written is correct.
As far as cross rates are concerned, I do not cover them in the lectures – partly because they are rarely relevant in the exam, but more importantly because they do not really merit a special lecture because they are just application of knowledge about using exchange rates that is covered in detail in my lectures.
However your logic in the example you give is correct 🙂
(I am puzzled where you found this question, because it is not the sort of question that the current AFM examiner is likely to ask. I assume that you are using a Revision Kit from one of the ACCA approved publishers (BPP or Kaplan) – this is certainly not in the BPP Revision Kit and I will be very surprised if it is from the Kaplan Kit 🙂 )
To see how the examiner has tested cross rates (which is very rarely indeed), look at the question Washi from the September 2018 exam. If you are unclear about what he has done in his answer, I explain in this post:
https://opentuition.com/topic/sep-2018-2/
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