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casasophia june 11

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › casasophia june 11

  • This topic has 3 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • September 21, 2015 at 9:29 am #272616
    jigsaw1992
    Member
    • Topics: 25
    • Replies: 70
    • ☆☆

    hi sir
    there seems to be a conflict.
    in the question, we are receiving $20m. using the forward rate, we will be selling dollars to buy euros so, well use the selling rate , thus 20m/1.3623, no problem.

    but now in part b, we where converting mshs 2,640,000,000 to euros. it means we are selling mshs to buy euros, we should use the selling rate rate to convert but apparently the buying rate was used in the prediction of 6 months spot rate and also the other aspect, what will be worse for us since we dividing we should use the bigger number as that will give a smaller amount of euro it means we should have still used 128 to predict not 116

    September 21, 2015 at 5:08 pm #272665
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54721
    • ☆☆☆☆☆

    No – they are not converting Mshs to Euros.

    They are taking a loan in Euros in order to buy Mshs so that they can make the investment..

    September 21, 2015 at 5:26 pm #272669
    jigsaw1992
    Member
    • Topics: 25
    • Replies: 70
    • ☆☆

    but then why was the 116 used instead of 128. why was 116 used

    September 21, 2015 at 5:39 pm #272673
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54721
    • ☆☆☆☆☆

    Because we are buying Mshs. If we had used 128, then it would have meant paying less which cannot possibly be the case – it is the bank that makes the profit out of the spread and not us 🙂

    The free lectures on this might help you.

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