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Hello John,
what exchange rate do we use when calculating the Forward rate contracts because in the June 2013 (kenduri) they used the lower rate that is 2.4/ 1.5996
and also in Mar/June 2016 (Lirio) they used the lower rate that is 20/1.1559 yet this is a receipt and the Kenduri question is payment.
which rates do we use for receipts and for payments?
thank you
You use whichever of the two rates gives the worst result – just as we do for spot rates.
The difference here is that in Kenduri the exchange rate is given as US$/1 Pound and Kenduri works in Pounds, therefore we divide by the exchange rate when converting, whereas in Lirio the exchange rate is given as US$/€ and Lirio works in $’s, therefore we multiply by the exchange rate when converting.
I do suggest that you watch my free lectures on foreign exchange risk management, because in the first lecture I spend a lot of time explaining which exchange rate we use, and how and why.
Thank you John, this is really helpful, I watched the lecture before, let me revisit it to refresh my memory.
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