Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Error in Pilot Paper Q2
- This topic has 1 reply, 2 voices, and was last updated 14 years ago by John Moffat.
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- June 3, 2010 at 4:55 pm #44385
I’ve been cracking my head over this question and i think there are 2 mistakes to it.
Firstly,
“EUR 0.6900 to the pound” means 1GBP = 0.6900EU, according to the suggested answer. This sounds correct if you intepret it in language terms. “to the pound” means 1 pound. Hence 1GBP = EU0.6900.However, this is quite strange because Bob Ryan, the examiner, always uses real life scenarios. So implying that the EU is stronger than GBP is inaccurate.
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Second error in the question is the calculation of the forward rate using IRP formula. The formula isSpot rate(indirect) X (1+ic)/(1+ib)
where
ic= interest rate in counter/home current country, i.e in this case should be UK’s interest rate as this is indirect quote. But the suggested answer puts ic as the EU interest rate.
ib= hence should be EU’s interest rate, i.e. the base/foreign currency, but the suggested answer puts it as UK’s.Are the above errors?
Thanks for the time
June 4, 2010 at 3:03 pm #62004You are correct – the two things go together, but certainly he has dealt with the exchange rate the wrong way round.
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