Good day to all of you.
I would Iike to ask a question regarding the forward contract in question 2b). May I know the reason why the answer is using the rate of 0.8729 instead of 0.8744 when calculating the forward contract ?
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Question 2 b) for MARCH 2020
3y ago#1They are receiving $'s and therefore need to sell $'s and buy €'s.
Given that the exchange rate is quoted here as €'s to the $, 0.8729 is the relevant rate for buying €'s. (Also, this is the rate that results in the smaller € receipt which has always to be the case - it is the banks who make the profit from the spread and not the company :-) ).
I do explain all of this (and how to remember the rule) at the start of the first of my free lectures on foreign exchange risk management.
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