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Hi John,
Why is it that on the date of the transaction you divide by the lower rate, i.e., 1.4791 to convert to spot, but then while calculating the profit, you divide by 1.4812?
To pay the supplier we are buying $’s and so convert at 1.4791.
We are receiving a $ gain on the futures therefore we need to sell $’s and so convert at 1.4812.
(What they could do is use the $ gain on the futures to part pay the $500,000 and so only the net $ amount would need to be converted at 1.4791). Either is acceptable in the exam.
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