ABC co whose home currency is dollars trades with customers in different counries . Company expects to recive 1200000 euros in 6 months time from foreign customer . Currency exchange rates in home country of ABC co are as follows:
Spot exchange rate 4.1780- 4.2080 euros per $
6 month forward rate 4.2302-4.2606 euros per $
Interest rate in home currency of ABC co is 4% per year
As well as considering the use of derivatives to hedge the risk exposure presented by receipt the treasurer of PZK is looking at internal methods such as invoicing in dollars, leading and lagging
Which of following statement is true concerning PZK co should invoice in dollars
Invoicing in dollars will eliminate all foreign exchange risk that PZK is exposed to. Sir this statement is false can you please explain me why
Ask the Tutor ACCA FM
MTQ
8y ago#1Invoicing in the home currency will eliminate the transaction risk, but will not eliminate the translation or economic risks.
See page 109 of the lecture notes!
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