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Hi Sir,
In the interest rate options,
why was the premium of $135,100 translated at 0.2355 instead of 0.2358?The premium is in dollars, and given that the company works in Ringgits they need to buy dollars in order to be able to pay the premium.
Given that the spot rate is quoted in $’s per Ringgit, they need to divide by 0.2355.
I do explain how to decide which figure to use when converting currencies in my free lectures. The easy way here is to realise that dividing by 0.2358 would result in a smaller $ payment and that cannot be the case. It is always the rate that is ‘worse’ for the company because the spread is so that the banks can make a profit 🙂
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