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example :
Assuming that the expected exchange rate is €1.4070 in 4 months’ time; calculate the gain or loss for McGregor company if it had hedged the €2.1 million receipt today using a forward rate of 1.3995 (to the nearest dollar amount).
answer : $1492537 (€2.1 million/1.4070)
why the answer is not $7,999
Where are you getting all these questions from?
I will have a look if you tell me which question, where it is from….
Text, exam kit, mock, hub………?
I presume that it is from the ACCA platform……Anyway I have attempted to answer:
To calculate the gain or loss, we need to subtract the forward rate from the expected exchange rate and then multiply it by the amount of euros. In this case, the expected exchange rate is €1.4070 and the forward rate is 1.3995.
The gain or loss can be calculated as follows:
2.1m / 1.4070 = 1,492,537
this question i get from ACCA pre-sept mock exam, question 25
the exchange rate does it means €1.4070:$1 and €1.3995:$1
so means that we are getting less $ because we using more € to get $
i found the solution for $7,999 [(2.1 million/1.4070)-(2.1 million/1.3995)
the formula u shown, i did use it in the test and the result was $15750 and is wrong answer
but if we do it in this way [(1.4070 – 1.3995) * €2.1 million] it does not seem logic as we receiving less $ means we are going to dividethe most logical calculation to me is the result of $7999
See it would help if you gave me the number of the question and where it is from
We are only here to support you
Not guide you on everything you look atyes, i understand. these is a section B question, and just released on 12th acca sept mock exam. the question that it asked is what i shown above.
Assuming that the expected exchange rate is €1.4070 in 4 months’ time; calculate the gain or loss for McGregor company if it had hedged the €2.1 million receipt today using a forward rate of 1.3995 (to the nearest dollar amount).
this is thee whole question. every possible calculation i had tried but the answer shown was so illogical. they do show the working and calculated the $7999 but the answer shown was the$1.4million
It could be wrong on written incorrectly
I presume you have done
Gain or Loss = (Forward Rate – Expected Exchange Rate) * Amount of Euros
Substituting the values:
Gain or Loss = (1.3995 – 1.4070) * €2.1 million
Calculating the result, we have:
Gain or Loss = -0.0075 * €2.1 million
Gain or Loss = €15,750MOVE ON PLEASE !!!
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