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Sir,
1. The spot rate is given as 0.70-0.74 ARD/JPY. I think that the rate that should be used to calculate future exchange rate for converting ARD cashflows into Yen be 0.74 as starting point. Because we have ARD cashflow and we need to sell it at 0.74. But answer started at 0.7.
I do agree on the 0.7 being used for calculating ARD debt required because we are buying ARD.
Could you please explain about this?2. The question says: the estimates are based on using the end of the first year, when the project commences, as the start of the project.
Why didnt the DF started with yr2 ( 1/1.12^2)? Just like how future exchange rate started. Rate assumed as yr1 in yr0 cash flow.Thank you sir
1. I agree with you and I think the examiner has made a mistake in his answer and that the future receipts should have been converted at 0.74 (as adjusted by inflation rates) and not 0.70.
2. Note 1 in the question is terribly badly worded and could be interpreted in more than one way. Fortunately the markers for Paper AFM know what they are doing and so if you had interpreted it differently from how the examiners answer does then you would still get the marks. (Which illustrates the importance of setting out your workings clearly in the exam – there is rarely just one ‘perfectly correct’ answer for AFM questions, so it is vital that the market can understand what it is you are doing 🙂 )
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Thank you so much sir 😀
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