Hello everyone. I need a little help.
The qs in P4 march/june hybrid paper included a fwd
market hedging technique.
The relevant scenario is as follows
It is expected that Lirio Co($) will receive Euro
(€) 20 million in three months’
exchange rate Three-month forward rates:-
$1·1559–$1·1601 :Per €1
The answer calculated in the marking scheme used the rate $1.1559.
My qs is that shouldnt the right hand rate be used to calculate the reciept i.e 1.1601?
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AFMNeed help. march/ june 2016 hybrid paper
9y ago#1The quote is dollars per euro.
So to convert the euros into dollars you need to multiply by the exchange rate.
Since it is a receipt you multiply by the lower rate i.e. $1.1559
(The first few examples in my lectures on foreign exchange risk management go through using exchange rates all different ways round :-) )
Thank you so much.I just watched the lecture and it helped ALOT! :)
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