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Hi,
im using kaplan text books and have been all through ACCA. Cutting short to the story, im confused in the examples in F9 and P4 kaplan text book.in money market hedge where you RECEIVE money, in F9, the spot rate is given as
1.7 – 1.7040. now, when converting from USD to sterling, the example uses the sell spot rate which is 1.7040- as we will deposit pounds.
however in P4,
:
1.8890 – 1.8920. the example uses 1.8890 buy spot rate.
this is really confusing.please can someone clarify in terms of receipts, which spot rate to consider.
Thanks a ton. i have searched online but getting some very lengthy theoretical papers and i dont have time for that right now.THANKYOU
If (for example) it is quoted as $/GBP 1.8890 – 1.8920, then you use the lower/first number (1.8890) if you are buying the first quoted currency (in this case $’s) and you use the higher/second) number 1.8920 if you are selling the first quoted currency (again, in this case $’s).
That is the way I remember it, but it is not the only way!
Remember it is whichever rate us worse for us (because it is the bank who profits from the difference).If you watch the first free lecture on foreign exchange risk management then I spend some time working through examples deciding which rate to use.
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