Hi,
I don’t understand why in this question forward rate for a receipt in euro is the 1.1559 as it is a lower of two quoted rates in three months time ($1.1559-$1.1601).
As it is a receipt, we will be selling, so the bank will buy from us and bank buys high, sells low?
Very confused right now:(
Thank you
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Lirio co mar/jun 16
6y ago#1Don't simply try and learn rules for this, because it all depends which currency the bank is buying and which they are selling. The reason for there being two rates is so that the bank can make a profit - as far as we (the company) are concerned, it is whichever rate is worse for us.
They have a receipt in €'s which they are converting to $'s. If we convert at the higher rate then we would receive more $'s - that cannot possibly be correct because it would mean the bank was losing out!!!
Do watch the first of my series of free lectures on foreign exchange risk management, because I spend time at the beginning explaining which rate to use, and why.
Thank you for your reply
Very much appreciated
6y ago#3You are welcome :-)
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