If we have $7,874,016 and we want the equivalent in pounds, then it means we are selling the first currency which is ($). The appropriate rate to use should then be the higher rate which is 拢1.6283. This is the understanding from previous studies.

However, you divided the $7,874,016 with the lower rate which is 拢1.6201.

Hello Sir, in example 6 while borrowing, we divided the 5M with 1+the interest rate. but in example 7 the amount borrowed is multiplied with 1+the interest. may you please explain why we cant divide the amount to be borrowed with the interest in example 7. thanks

Good day sir. I have a similar concern as Foziaibrahim above, why then in example 6 did we receive $4.9M and not more than the $5M. It’s still not clear to me how in example 6 when borrowing we divided by 1.0145, while investing we multiplied by 1.009. Meanwhile in example 7 while borrowing we multiplied by 1.02475 and while investing we divided by 1.0116. I was expecting the actions of “borrowing” or “investing” to be treated same in both questions. Can you please enlighten me so i understand better? Thanks

We are going to receive $5M in 3 months. So the amount we borrow now must be such that after adding on 3 months interest on the borrowing it comes to $5M (so that the $5M will be enough to repay the borrowing together with the interest on the borrowing). Therefore we can only afford to borrow $4.9M now. After 3 months interest we would be owing $5M and so the receipt in 3 months will be enough to repay the borrowing.

I do actually explain in the lecture that interest rates are always quoted as annual rates even though they only apply to loans and deposits for the period stated (in this case 3 months). If the loan or deposit was for 6 months then the interest rate quoted would still be quoted as an annual rate, but would be a different annual rate.

Hi Sir, When you convert the $ deposit of 7,874,016 to find out how many pounds you need to borrow, shouldn’t you divide by 1.6283 because you will have to sell $’s to buy pounds?

Odgerel says

Hi the pound i pay after borrowing is more than i exchange the dollar today. So does it means i am suffering because of the negative result?

John Moffat says

It depends on whether you are receiving or paying dollars.

khobby says

Hello Sir,

If we have $7,874,016 and we want the equivalent in pounds, then it means we are selling the first currency which is ($). The appropriate rate to use should then be the higher rate which is 拢1.6283. This is the understanding from previous studies.

However, you divided the $7,874,016 with the lower rate which is 拢1.6201.

Could you please clarify?

Thank you sir.

John Moffat says

In this example we are buying dollars (not selling them), so that we will have enough to later (when interest is added) to be able to pay the $8M.

Fowziaibrahim says

Hello Sir, in example 6 while borrowing, we divided the 5M with 1+the interest rate. but in example 7 the amount borrowed is multiplied with 1+the interest.

may you please explain why we cant divide the amount to be borrowed with the interest in example 7.

thanks

John Moffat says

If you borrow money, then at the end of the period you are owing more money.

kasobi says

Good day sir.

I have a similar concern as Foziaibrahim above, why then in example 6 did we receive $4.9M and not more than the $5M. It’s still not clear to me how in example 6 when borrowing we divided by 1.0145, while investing we multiplied by 1.009. Meanwhile in example 7 while borrowing we multiplied by 1.02475 and while investing we divided by 1.0116. I was expecting the actions of “borrowing” or “investing” to be treated same in both questions. Can you please enlighten me so i understand better? Thanks

John Moffat says

We are going to receive $5M in 3 months. So the amount we borrow now must be such that after adding on 3 months interest on the borrowing it comes to $5M (so that the $5M will be enough to repay the borrowing together with the interest on the borrowing). Therefore we can only afford to borrow $4.9M now. After 3 months interest we would be owing $5M and so the receipt in 3 months will be enough to repay the borrowing.

raonanuga says

The question says 3 months interest rate why have you converted it yet again to a monthly rate

John Moffat says

I do actually explain in the lecture that interest rates are always quoted as annual rates even though they only apply to loans and deposits for the period stated (in this case 3 months).

If the loan or deposit was for 6 months then the interest rate quoted would still be quoted as an annual rate, but would be a different annual rate.

sharon1507 says

Hello, i am really confused about when to divide and when to multiply. Can someone help me please. Thank you

John Moffat says

Have you watched the first in this series of lectures?

zaidrafiqkhan says

Basically this is the core problem most students faced,

Just remember one simple thing you have to pay high and receive low amount… so do your calculations in that way.

noormkhan says

Use the following table

First currency. Second currency

Payments _We buy Low rate High rate

We sell. High. Low

Conversion Division Multiplication

douglasnyangara says

Use cross multiplication, if $1.6= 1 pound , then $8M = ?

John Moffat says

If you want to deposit $’s then you need to buy $’s in order to have $’s to put on deposit.

devilspal says

Thank you. Helps!

John Moffat says

You are welcome 馃檪

thirushi says

Hi Sir,

When you convert the $ deposit of 7,874,016 to find out how many pounds you need to borrow, shouldn’t you divide by 1.6283 because you will have to sell $’s to buy pounds?

rehan1o1 says

same question sir, kindly reply

John Moffat says

I did reply the same day – the reply is above the question 馃檪

douglasnyangara says

Always work on the assumption that you’re at a disadvantage, you need to borrow, what rate makes you borrow the most?

mariyaaa says

Thanks. Finally you said it the easy way! I had been so confused.