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- September 3, 2019 at 5:50 pm #544562
Hi Dear Tutor, I have some questions
It says deposit in European state is 3% and borrow rate is 5 %
It says deposit in home country(THE USA) is 4% and borrow rate is 6%
——————————–Deposit————borrow
euro—————————3%—————-5%
dollar————————-4%—————-6%Since it says the home country is the USA and if it exports meaning that it receives euro 500000
I did in the following way
Borrow euro 500000/1.03=(6%*6months/12 months/100%+1)=485437euro
Comvert to dollar-485437/2euro current spot rate=242719euro
deposit at euro=242719*1.015=(3%*6months/12 months/100%+1)=246360
in the answer 5% borrow rate has been taken and deposit rate is 4 %
Usually if I sell if my home currency is dollar i take the highest borrow rate and take the lowest deposit rate but in this example I confused
Need explanation for 2012 june paper question?I put 2015 as it is the same as June 2015.June 2015 question section B 1
————————-Deposit————–Borrow
euro———————-4%—————-8%
dollar——————–2%—————3.5%home currecny is dollar and the receipt is euro and i took the highest borrow rate and take the lowest deposit rate and the answer is correct.
Thanks in advance
September 4, 2019 at 11:40 am #544678Zigto is borrowing euros. The euro borrowing rate is 5% p.a. and not 6%.
They are depositing $’s and the $ deposit rate is 4% p.a. and not 3%.
This is all explained in the examiners answer!!!
September 6, 2019 at 9:06 am #545235?f I look at this prespectice EURO libor 3 and 5 and USA libor 4 and 6
Now it is clear for me.
Thank you very much my Dear Tutor.
September 6, 2019 at 3:52 pm #545304You are welcome 🙂
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