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Hi, the spread of the spot exchange rate is given as 1.5938 — 1.5962 (US$/pound), so if I buy US$, I use 1.5938. If I sell US$, I use 1.5962.
In the sample answer, when converting the $2,381,543 into UK pound, am I not supposed to sell $ to get UK pound, and hence, I use 1.5962. But, 1.5938 is used instead to convert $2,381,543 into 1,494,255 pound. Please may I know why that is so?
If they were receiving US$’s then you would be correct.
However they are not receiving US$’s – there is a net payment of $’s and therefore they are buying $’s and therefore use 1.5938.