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The current spot rate for the dollar/Euro is 2.0000+/- 0.003. The dollar quoted at a 0.2c premium for the forward rate?
What will a $2000 receipt be translated to at the forward rate?
1.997-0.2c then divide by 2000 ryt?The current spot rate is 1.997 – 2.003
So the forward rate is 1.995 – 2.001That bit you have got correct.
However since the receipt is in $’s and needs converting to Euros, we convert at 2.001
(If you watch the free lectures I do explain how to decide which of the two rates to use).Also, (although maybe you mean correctly you wrote it wrong), to convert from $’s to Euros we divide 2,000 by 2.001 (you wrote the other way round).
So it converts to EUR 999.50(If you took 1.995 then you would end up with more euros which cannot be the case – it is always the rate that is worse for us (it is the bank who gains, not us 🙂 )
is that a reason why Islamic finance is getting popular now? just a doubt relating to financial world not religious perspective. Got it thnks was confused little bit
You mean is converting foreign exchange the reason that Islamic finance is more popular?
If so, then there is no direct connection.With the economic growth of many Islamic countries couple with globalisation, companies in those countries need to be able to raise finance in ways that comply with the religious laws.
I meant that its a zero sum game and banks are always winning. So through IF dont we reduce it?
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