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Bull dog Ltd A Uk company buys goos from RedLand which cost 100,000 Reds( the local currency). The Goods are re-sold n the UK for £ 32000 . At the time of the import purchase the exchange rate for Reds against Sterling is Red 3.5650 – Red 3.5800 per £1.
My doubt is which is considered as banks selling/ offer rate? and
what is cost of 100,000 reds in sterling ?
Is it (100, 000/3.5800)?
In text the solution is given as (100,000/3.5650)
please replyI assume that you have watched our free lectures, in which case you will know that 3.5650 is the relevant rate if we are buying Reds, and 3.5800 is the rate if we are selling Reds.
In this example we are in the UK and will be paying Reds, so we need to buy Reds. Therefore the relevant rate is 3.5650.
(Try yourself with both rates – it has to be whichever is worse for us, so that the bank can make a profit!!! The worse for us is using 3.5650.)
OKkk.. Now I understood… Thank you sir. I got confused with banks (offer)selling rate and importers (offer)selling rate. I thought 3.58 as the banks selling rate. Now its cleared. Thank you
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