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Hello, I have doubt in the first part that is forward contract. I have seen your lectures and as explained by you Lower rate – if buying first currency, Higher rate – if selling first currency.
But in this question the rates are given other way around so Receipt is in Euros but rates are also given per euro so how do I apply this logic? Usually banks are selling JPY so we will have to take higher rate but in question they have taken lower? Could you please explain?
Thank You.
They are receiving Euros and therefore they will be selling euros and buying JPY.
Therefore they are buying the ‘first currency’ and so the relevant rate is the first (lower) one).
(I don’t know why you write that ‘usually banks are selling JPY’. The banks do what we ask them to and in this case we want them to sell Euros and buy JPY!)
Okay understood.
Yes, that’s right but for understanding purpose of which rate to select I take bank into consideration.Thank you 🙂
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