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PRE MOCK F9 JUNE 2022

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  • This topic has 1 reply, 2 voices, and was last updated 8 months ago by John Moffat.
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  • June 3, 2022 at 10:19 am #657216
    Shi2004
    Participant
    • Topics: 79
    • Replies: 33
    • ☆☆

    This is another question on the forex. The debt finance will be provided by an immediate €6.5million loan notes. The interest rate on the loan notes is 8% per year with annual interest being payable in 2 installments in euros on a 6monthly basis €260000. What is the dollar cost in the forward market of hedging the first interest payment on loan notes?
    The spot exchange €1.3050-€1.3112
    6mnth forward €1.2876-€1.2902
    My question is why do we take the €1.2876 and not 1.2902?

    June 3, 2022 at 4:07 pm #657271
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51562
    • ☆☆☆☆☆

    They will be buying Euros to make the interest payment and therefore the conversion is at the first (lower) rate.

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