Forward contracts – ACCA Financial Management (FM)
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Sir, in example 4, the forward points were given as “0.62 – 0.51 c pm”
The term “c pm” (cents per month) means per month, why not multiply by 3 months?
‘pm’ stands for premium (as stated above the example) and I explain the significance of this in my free lectures working through this chapter.
Sir, is there a case in example 3 where they say pennies pm in which case 1 pound will get you more dollars hence you add?
Sir, can you please advise when we multiply versus when we divide?
I spend time explaining this in the previous lectures on this chapter.
We multiply when our currency is not the base currency, we divide when our currency is the base currency. Hope this helps!
I don’t think that’s correct, we multiplied in Example 2 when it was IR/R$ and our currency was the base currency i.e. IR and in every other example the base currency has been $ and we have been dividing as our currency was in Pounds.
Hi John,
Thank you so much for your brilliant lecture,so i have a question ,Does that mean if a company was to pay 2m forward rate then decided to pay in 5 weeks ,then they will pay using the 2m forward rate or they will have to wait for 2 months inorder to pay?
Sir, I have a doubt.. I thought while buying the 1st currency (eg. $/?) $ we have to divide the spot the rate with the given figure in the question and for selling the 1st currency we need to multiply the latter spot rate with the given figure. But in example 4, where we are selling dollars to receive pounds we are dividing 1.5334 with 150000 when clearly its selling….. Am confused when to multiply and when to divide the spot rate.. Kindly help!!
Thank you for your comment 🙂
Thank you so much sir. I’ve just learned about dealing with premiums and discounts