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Bpp mock 1 q19(foreign currency)

This topic has 2 replies, 2 voices, and was last updated 10 years ago by John Moffat.

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November 11, 2014 at 8:27 am #208987
learner93
Member
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The US$/European € spot rate is currently 1.9612-1.9618 $/€.
3 month forward rate is quoted at $0.0012-0.0006 premium in Europe. A US company is expecting to receive €2.5 mil in 3 months time and would like to hedge this using forward contract.
US$ in 3 months time =?
The answer given is €2.5mil/1.96 =$1,275,510.
Shouldn’t it be €2.5milx1.96= $4.9mil?
Thanks in advance.
November 12, 2014 at 1:33 am #209226
learner93
Member
- Topics: 16
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Sir, i hope my question is not missed, thank you.
November 12, 2014 at 12:42 pm #209332
John Moffat
Keymaster
- Topics: 57
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Assuming that you have typed the currencies correctly, then you are right and BPP’s answer is wrong 🙂
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