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Im confusing with the formula used,why the spot rate is 1.6244 but not 1.6239?
Besides,why the rate of 0.03725 need to times the period 2/12? I thought the rate is already a two month rate which no need to take into account the period again.
Kindly advise.
If you learn the rule the way I give it in the lecture, then since they are buying euros, they are selling swiss francs – if you are selling the currency then you use the higher rate.
Otherwise, try both – it is whichever is worst for the company which here is the higher rate.Again, I explain this in the lectures on money market hedging. Interest rates are always given as annual rates. They are different depending on the length of the deposit or borrowing, but they are always quoted as annual rates (both in real life, and in exams).
(In future you must ask in the P4 Ask the ACCA Tutor Forum if you wish me to answer. This forum is for students to help each other.)
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