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Hi, query re Cross rates from Washi Co (Sep18)
JPY/EUR 129.2-132.4
ARD/EUR 92.7-95.6If we are given a spread, can we use the mid-points to produce a cross rate:
JPY/1EUR (129.2+132.4)/2 130.80
ARD/1EUR (92.7+95.6)/2 94.15JPY/ARD 1.3892 (130.8/94.15)
ARD/JPY 0.7198 (94.15/130.8)The above yields a different answer but is it acceptable in the exam?
Additionally, does it matter which rate I use in the question (1.3892 or 0.7198)?
Thanks
No – you should not use mid-points to calculate the cross rate. (f you do you will lose marks, but not so many marks provided that everything else is done correctly 🙂 )
Ok thanks.
In terms of Washi Co, I do not understand which sides of the spread to use when calculating the cross rate. Finding the logic behind the solution difficult.
JPY/EUR 129.2-132.4
ARD/EUR 92.7-95.6Cross rate: 132.4/92.7 = 0.70
Why not 129.2/95.7?
This yields 0.74
I have been through the below thread – just not grasping it.
https://opentuition.com/topic/cross-rates-washi-sep-2018-kaplan-exam-kit/
Thanks
For the initial investment they need to buy ARD.
1 EUR buys 92.7 ARD, and 132.4 JPY will buy 1 EUR
Therefore 132.4 JPY will buy 92.7 ARD
Therefore 1 JPY will buy 92.7/132.4 = 0.70 ARD
(for the ARD receipts it works the other way round and the examiner should have used 0.74).
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