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Exchange rate Spread

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Exchange rate Spread

  • This topic has 5 replies, 2 voices, and was last updated 11 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • December 1, 2013 at 6:04 pm #148908
    babarali47
    Member
    • Topics: 16
    • Replies: 23
    • ☆

    Hello sir. Can you please tell me the different ways in which spread on exchange rates can be quoted in the exam. These are the two I know and understand: $/£ 0.6500 +/- 0.0003 and 0.6495 – 0.6505…. Are there any other ways through which examiner can try to confuse us? And you said something about opening and closing future prices in the lectures. Please explain that too and any other possibly technical terminologies. Thank you.

    December 1, 2013 at 6:10 pm #148916
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    Those are the only two ways.

    There is not opening and closing futures prices – there is the price when you start the deal and the price when you finish the deal.

    The previous examiner did you use the terms ‘open’ and ‘settlement’ for futures – I do not think that the current examiner will, but open is the price at the start of the day, and settlement is the average price for the day. You use settlement price.

    December 1, 2013 at 6:43 pm #148926
    babarali47
    Member
    • Topics: 16
    • Replies: 23
    • ☆

    Thank you sir :)… And one more thing. I vaguely remember something about discounts and premiums in Forward contracts. Can you please explain with a tiny example?

    December 1, 2013 at 8:03 pm #148937
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    I really do not think it will be relevant for P4, but just to be safe…..

    Suppose the spot rate is $/£ 1.6020 – 1.6030

    And the forward rate is 0.50 – 0.40 c pm (c stands for cents and pm stands for premium, the alternative is dis for discount)
    So….in $’s it is 0.0050 – 0.0040

    To get the forward rate you subtract a premium (because it means that the dollar is quoted at a premium, so fewer $’s to the £), if it was at a discount then you would add the discount.

    So in this example, the forward rate is 1.5970 – 1.5990 (the spot rate, less the premium)

    December 1, 2013 at 8:49 pm #148956
    babarali47
    Member
    • Topics: 16
    • Replies: 23
    • ☆

    Thank you sir, much helpful 🙂

    December 2, 2013 at 7:33 am #148985
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    You are welcome 🙂

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