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sheee.
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sheee
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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 followsIt is expected that Lirio Co($) will receive Euro
(€) 20 million in three months’
exchange rate Three-month forward rates:-
$1·1559–$1·1601 :Per €1The 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?
John Moffat
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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 🙂 )
sheee
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Thank you so much.I just watched the lecture and it helped ALOT! 🙂
John Moffat- You must be logged in to reply to this topic.