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Hello! I have been struggling with the following task:
When I am given the current spot rate, exchange rate in 4 months and exchange rate in 12 months, how the exchange rate for 8 months can be calculated? I am expecting to pay an amount in 8 months period.
Thank you!What you are asking would be unusual for Paper F9 (it is more common in P4). I am wondering if you have interpreted the question correctly.
However you would apportion linearly between the 4 month and 12 month rates.
8 months is half way between 4 and 12 months and therefore you would take a rate half way between the 8 month and 12 month rates (i.e. add them together and divide by two).Thank you. I saw this question in the mock exam.
A company expects to pay $200,000 in 8 months period.
Current exchange rate – 1.75 $/EUR
4 month rate – 1.78 $/EUR
12 month rate – 1.80 $/EURCalculate receipts in EUR if forward hedge is taken?
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