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Question 2 b) for MARCH 2020

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Question 2 b) for MARCH 2020

  • This topic has 1 reply, 2 voices, and was last updated 2 months ago by John Moffat.
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  • November 16, 2022 at 12:58 pm #671610
    jessieliow
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    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 ?

    November 16, 2022 at 4:31 pm #671627
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51560
    • ☆☆☆☆☆

    They 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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