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Good morning sir,
I have a question for you .please solve it for me.An Australian company needs to purchase 100,000 US dollars to pay for imported goods.
The USD/AUD quoted rate is 1.0625 on the bid and 1.0675.Thank you.
Why have you headed this thread as ‘currency futures’? This is nothing directly to do with futures 🙂
Think about it – the rate we use is the rate that is ‘worst’ for us (because the spread exists such that it is the bank that makes the profit 🙂 )
It will cost the company more to convert at 1.0625 than to convert at 1.0675 and therefore we convert at 1.0625, and in AUD it is 100,000/1.0625.
Do watch my free lectures on foreign exchange risk management, because in the first lecture I spend time explaining which rate to convert at (and why).
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