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Hi John,
We are given with the spot and forward rates. Suppose we are in Europe and have to make payment in US dollars. We have to calculate the payment using forward contract rates.
My confusion is when to divide or multiply that rate with the amount of payment.
Is this some rule to always divide or something. Because I have so much confusion with this.
I know this might be a very silly doubt but I hope you’ll help me to clear out this confusion.
Thank you so much!
Regards,
MeghaIn addition to the above..
I am referring to Kaplan study text chapter – 10, Hedging foreign
exchange risk.If you can take a look for understanding 2 question ( Marcus Co.), for forward contract calculation they have calculated more euros in both situations which I think should be wrong because as per my understanding Euro is stronger currency than both US dollars and Aus dollars.
Can you please review and confirm.
Thank you
I do not have the Kaplan Study Text and so I cannot comment on the question you refer to.
As far as deciding whether to multiply or divide then converting currency, watch the first of my free lectures on foreign exchange risk management, because I spend time explaining (with examples) which rate to use and whether to multiply or divide 🙂
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