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Need help. march/ june 2016 hybrid paper

Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › Need help. march/ june 2016 hybrid paper

  • This topic has 2 replies, 2 voices, and was last updated 8 years ago by sheee.
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  • Author
    Posts
  • December 7, 2016 at 12:02 pm #354968
    sheee
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    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?

    December 7, 2016 at 2:25 pm #355030
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    The 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 🙂 )

    December 7, 2016 at 6:04 pm #361960
    sheee
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    Thank you so much.I just watched the lecture and it helped ALOT! 🙂

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    Posts
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