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yes , all the question I asked in the JUNE 6 papers.
the Q1. I know, we should consider the premium. I think for the part (i),I just do not understand why the answer said premium is 36086000*25%, not equity value *125%? how much of the purchasing price? is that equity value*125%?
2. for the second Q, my understanding about why using 128 is they will receive 1.5 billion MShs, but the company is European company, so when they receive MShs, they should sell it. so we should use the buyer rate? is that right?
thanks1. Yes – the premium as 25% and the total is the value plus 25%
2. You use the lower rate if the company is buying the ‘first’ currency (which here is MSfs) and the higher rate if the company is selling the ‘first’ currency.
Think about it – it they used 116 they would end up with more euros which cannot be the case – the reason for two quotes is the banks margin. It is the bank who gains, not the business 🙂
(I do suggest that you watch the first free lecture of foreign currency risk management because I spend time first explaining which exchange rate to use always and why.
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