[Revision Kit] 57 Asteroid Systems (6/08) - Money market hedging

You have mis-read the second sentence of the question. The Swiss business is remitting from Switzerland to Germany - so they need to buy Euros and sell Swiss francs.

I got it. Thank you very much.

You are welcome :-)

Dear Sir The answers to this question reads "Exposure to transaction risk could be eliminated by entering into a forward contract to purchase Swiss francs... If the subsidiary is purchasing EUR to remit, is this sentence above incorrect? thanks

I do not know which Revision Kit you are using (this question is not in either the current edition or the previous edition of the BPP Revision Kit). I do however have the original question and the examiners answer, and it does not read as you have written it. What is in the examiners answer is not that they are purchasing Swiss Francs but says "the exposure to movements in the Swiss Franc can be eliminated by entering into a forward contract to purchase the currency at Euro SFr 1·6199". Although it could have been better worded, the sentence does not specify which currency they are purchasing and it is Euros that they will be purchasing. While writing, I imagine that the reason the question is not in the recent editions of the BPP Revision Kit is that it was written by the previous examiner (who did not remain examiner for long because he set some very ridiculous questions). One example in this particular question is the table giving the 'closing mid-point' etc.. Although it was valid to do this, the exam is more supposed to be testing the understanding of the ideas involved rather than testing on tables from the Financial Times. The current examiner (who has been the examiner since 2010) does not do this sort of thing.

Dear Sir Thank you for your response. By the way, I copied those extracted text from the BPP Practice and revision kit for exams from Sep 2015 to Aug 2016. I realized that the later versions no longer have these text.

You are welcome :-)