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Edted Plc

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Edted Plc

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 13, 2017 at 6:31 pm #410835
    jrede
    Member
    • Topics: 7
    • Replies: 9
    • ☆

    Edted plc has to pay a Spanish supplier 100,000 euros in three months’ time. The company’s finance director wishes to avoid exchange rate exposure and is looking at four options

    1) Do nothing for three months and then buy at the spot rate
    2) Pay in full now, buying euros today at the spot rate
    3) Buy euros now put them on deposit for three months and pay the debt with these euros plus accumulated interest
    4) Arrange a forward exchange contract to buy the euros in three months’ time

    Which of the options would provide cover against the exchange rate exposure that Edted would otherwise suffer?
    A. Option 4 only
    B. Options 3 and 4 only
    C. Options 2, 3 and 4
    D. All options

    Shouldn’t the answer be all as statement one is considered as lagging?

    October 13, 2017 at 6:49 pm #410846
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    No. Lagging is when we pay later than the due date because we think the exchange rate will move in our favour.
    Simply paying on the due date at whatever the spot rate happens to be is not taking any action at all to avoid exchange rate risk.

    October 14, 2017 at 11:56 am #410921
    jrede
    Member
    • Topics: 7
    • Replies: 9
    • ☆

    Thank you! I understand now

    October 14, 2017 at 4:50 pm #410983
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Edted Plc’ is closed to new replies.

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