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Foreign Exchange Risk

Forums › ACCA Forums › ACCA FM Financial Management Forums › Foreign Exchange Risk

  • This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • May 16, 2015 at 9:56 pm #246454
    sarcastic
    Member
    • Topics: 3
    • Replies: 8
    • ☆

    The current spot rate for the Dollar /Euro is $/€ 2.0000 +/- 0.003. The dollar is quoted at a 0.2c premium for the forward rate.

    What will a $2,000 receipt be translated to at the forward rate?

    May 17, 2015 at 9:18 am #246508
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54755
    • ☆☆☆☆☆

    If we were converting at spot, the relevant rate would be 2.0000 + 0.003 = 2.0030

    For the forward rate, since it is quoted at a premium, we subtract it from the spot rate.

    So the relevant rate to use is 2.0030 – 0.0020 = 2.0010

    (You should watch our free lectures on foreign exchange risk where all of the above is explained in detail.)

    May 17, 2015 at 10:05 am #246523
    sarcastic
    Member
    • Topics: 3
    • Replies: 8
    • ☆

    thank you 🙂

    May 17, 2015 at 11:25 am #246533
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54755
    • ☆☆☆☆☆

    You are welcome 🙂

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