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2012 june question number 3

KKanan6y ago
Hi Dear Tutor, I have some questions It says deposit in European state is 3% and borrow rate is 5 % It says deposit in home country(THE USA) is 4% and borrow rate is 6% --------------------------------Deposit------------borrow euro---------------------------3%----------------5% dollar-------------------------4%----------------6% Since it says the home country is the USA and if it exports meaning that it receives euro 500000 I did in the following way Borrow euro 500000/1.03=(6%*6months/12 months/100%+1)=485437euro Comvert to dollar-485437/2euro current spot rate=242719euro deposit at euro=242719*1.015=(3%*6months/12 months/100%+1)=246360 in the answer 5% borrow rate has been taken and deposit rate is 4 % Usually if I sell if my home currency is dollar i take the highest borrow rate and take the lowest deposit rate but in this example I confused Need explanation for 2012 june paper question?I put 2015 as it is the same as June 2015. June 2015 question section B 1 -------------------------Deposit--------------Borrow euro----------------------4%----------------8% dollar--------------------2%---------------3.5% home currecny is dollar and the receipt is euro and i took the highest borrow rate and take the lowest deposit rate and the answer is correct. Thanks in advance
John MoffatJohn MoffatTutor6y ago#1
Zigto is borrowing euros. The euro borrowing rate is 5% p.a. and not 6%. They are depositing $'s and the $ deposit rate is 4% p.a. and not 3%. This is all explained in the examiners answer!!!
KKanan6y ago#2
?f I look at this prespectice EURO libor 3 and 5 and USA libor 4 and 6 Now it is clear for me. Thank you very much my Dear Tutor.
John MoffatJohn MoffatTutor6y ago#3
You are welcome :-)
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