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    • But as I say in the lecture, it is always quoted in the smaller unit of the currency (which in the case of dollars is cents). The exception (as I also state in the lecture) is Yen where it is quoted in Yen as well.

  2. Sir you said “For example, it the exchange rate is $/€ 1.50 (which means 1.50$’s per €) then if you are converting from $’s to €’s then you divide by 1.50. If you are converting from €’s to $’s then you multiply by 1.50.”

    In our question we are converting from £ to buy $ so we can pay $, why then do we divide instead of multiplying?

    Thanks.

    • Yes, but need to convert from $’s to find out how many GBP we will need to be able to buy the $’s.

      If you multiply the answer by the exchange rate then it will come to the exact amount of $’s that we need.

      • It has nothing to do with whether you are paying or receiving. Whether you multiply or divide only depends which currency you are converting.

        For example, it the exchange rate is $/€ 1.50 (which means 1.50$’s per €) then if you are converting from $’s to €’s then you divide by 1.50. If you are converting from €’s to $’s then you multiply by 1.50.

        I do suggest that you watch the first lecture on foreign exchange risk management again because I work through several examples of this.

        (Receiving or paying only effects which of the two rates you use when you are given a spread – it has no relevance in terms of whether you multiply or divide)

      • As your notes 1st number is the rat at which bank sale $ to us and 2nd number is the rate at which bank buy $ from us

        In example 3
        We are in america we need to pay in UK .so we take $ and go to bank we sale Dollar and buy from us $ so there must b 2nd numbr as bank buy $ from us and tranfer to UK in pounds.

      • Sir we need to pay$200,000 we are in america and we need to pay in uk ..

        i go to bank and sale $ to bank so bank buy from me $ so sir when bank buy $ must be 2nd rate used why you use 1st rate and other thing is that why we make division ? please sir tell me.. Example 3

      • You need to read the question again. We are not in America at all. We need to pay $200,000 and we need to convert to GBP.
        Therefore we divide by 1.4910 ( The 1 month forward rate for purchasing $’s) because the question says that there are that many $’s to the pound.

        1.4910 is the rate to use if we are buying $’s. (if we converted at 1.4970 it would end up costing us less, which would be ridiculous – it is the bank who profits and not us.)

  7. why have we calculated the 2M forward difference as 0.0083-0.0092 although there is no c next to the figures in the question!!!

    As you mentioned in the previous question that when c is mentioned .. this means the difference is in Cents !!

    • In practice they do not write c against it – in practice it is always quoted in the lower unit of currency (in this case cents) when given as a difference from spot. (The only exception is Yen, but this is not relevant for the exam)

      (In fact, the current examiner usually gives the forward rate directly rather than quote it as a difference from spot, and so the problem does not tend to arise these days in the exam.)

    • what do you mean, where is it?

      It is futures contracts that you close out (not forwards), and closing out means finishing the deal (if you buy futures then you have to sell them at a later date; if you sell futures then you need to buy them at a futures date)

      Calculations on futures cannot be asked in F9 – you can only be asked to describe how they work.

      • If you look at the contents list on the first page of the Course Notes you will find ‘foreign exchange risk management’. It is in there!

        You will find the links to 7 lectures on Foreign Exchange Risk Management on the main F9 page of this website.

  10. I keep getting the following error:

    Server not found: rtmpt://r.acca.opentuitioncom.netdna-cdn.com/play

    Was in the middle of the video. Usually it’s OK, but once in a while I get this message.

    The lectures themselves are very helpful. I huge thank you to John an to this site!

  14. I am not understanding, so he is buying in dollars, therefore I would have thought that he should receive the less money, being 1.4970 rate totalling £133600.53 and not the higher amount £134138.16 as the bank is not benefiting from this, but I am.

    Have i got this wrong ?

    • @fenechbrian, Hi Brian, you said “he is buying in dollars”. This is incorrect, the lecturer said we assume the company is in the Uk unless told otherwise, so we are buying Dollars, not buying IN Dollars, and we are buying with Pounds. Therefore use the Company is buying/selling rule, which will give you the correct figure.

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