I always find difficulties in using spot rates if making a payment or receiving in a different currency. Example
Scenario 1. When Company B is in US and needs to pay a supplier in UK 800,000 sterling pounds today
Scenario 2. When Company B is in US and is expected to receive 800,000 sterling pounds from UK today. If spot rates given are as follows:
Spot $/Pound 1.6413 - 1.6452
Which spot rates would be used in the scenarios above and why?
Ask the Tutor ACCA AFM
Foreign Exchange Risk Management
10y ago#1For scenario 1 the relevant rate is 1.6452.
For scenario 2 the relevant rate is 1.6413.
(It is whichever rate is worst for the company!)
I do suggest that you watch our free lectures on this because I go through lots of examples sorting out which rate to use and why, and I cannot type out all of the lectures here :-)
Thanks that's great, I thought first spot rate is for payments and last spot rate is for receipts always.
10y ago#3You are welcome :-)
Sign into reply to this topic.