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Hello John
The question is:
M Plc. regularly purchases from a foreign supplier who invoices in their own currency, Rupee. The domestic currency of M Plc. is the dollar, $ and the current spot rate is 27 rupees per dollar. To borrow in the foreign currency, interest is charged at 6.5% per annum whilst M can borrow in their domestic market at 3.2%. What is the predicted spot rate in 1 year to 2 decimal places?My question:
From the info above $1=R27, therefore the calculation I think should be:
27 x (1.032/1.065)= 26.16 since according to the example in OT notes chapter 22 e.g. #1, the interest rate which relates to the “per unit currency” is the numerator and in this case that per unit currency is the $. However, the answer to this question has it inverted. Please explain which is the correct way, thanks.
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