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Lammer PLC – Forward rate

This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.

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December 6, 2022 at 6:31 pm #673728
silverstar
Participant
- Topics: 1
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Home currency is GBP.
We received in USD.
Logically, we want to sell off our USD to get GBP.
But why did the answer in the book use the buy rate?
Given 3month and 1 year rate.
We want to find the 5th month.
Supposedly, 3month of sell rate + 2/9*(1 year – 3month of sell rate)
But answer use buy rate. Why would we want to buy more USD when our purpose is to sell USD?
December 7, 2022 at 6:29 am #673815
John Moffat
Keymaster
- Topics: 57
- Replies: 54832
There is a net payment of $1,150 because they are importing goods and need to pay for them. Therefore they need to buy $’s.
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