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Dear,
Hope this finds you well.
In the currency forward we used 125.3 JPY per EUR 1 six months forward, why?
And am really confused regarding the using of the rates (although i passed my F9 paper) but till now am really confused in choosing which rate to use, can you please provide a clear rule for selecting the rates?
Thanks in advance
The rates are quoted as JPY per EUR.
Therefore if they are buying JPY (the first currency) you use the first/lower rate of 125.3. If they are selling JPY (the first currency) then you use the second/higher rate of 128.6.
Here they are receiving EUR and therefore need to sell EUR and therefore buy JPY. So we use the first/lower rate of 125.3.
It is always whichever rate is worst for the company (because it is the banks who profit from the spread 🙂 )
I do spend time in the first of my free lectures on foreign exchange risk management explaining a clear rule to use, with several examples.
Thank you John,
Can you please provide ma a like to that session if possible, sorry for continuously disturbing you.
The lectures (and other resources) are all linked from our main Paper AFM page: https://opentuition.com/acca/afm/
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