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
Ask the Tutor ACCA FM
2012 june question number 3
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!!!
?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.
You are welcome :-)
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