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when doing question of risk management,we must be familiar with exchange rate,especially so called money market hedge methods.eg.1£=1.55±0.02$.this confuse me as i really wanna know when we use “+” and when we should use “-” when converting the currency?anybody will help me,plz!
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The easy way is to remember that the bank will use the rate that is not in your favor. From your example, you have rates 1.57 or 1.53 USD per GBP.
If you are converting GBPs into USDs, the bank would give you 1.53: the rate in the bank’s favor.
If you are converting USD into GBP, the bank would use 1.57. Again, the bank wins.
In each case, the bank converts using the rate to your disadvantage.
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