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Hi, Sir.
Washi co sold it subsidiary, receive EUR 80m, then invested in Japanese treasury bills.
Which mean, invests in treasury bill is buy, so the spot is 132.4, then sell the EUR, therefore the spot is 92.7?
I am not sure which part of the question you are referring to.
For part (c)(i) of the question:
They will receive €80M in six months time and it will need converting into Yen.
If they were receiving it ‘now’ then they would convert it at 132.4, but because they are not receiving it for 6 months, they will hedge by using forward rate, futures, or options.However many Yen they end up getting in 6 months time (which depends on which method of hiding they choose), those Yen will then be invested for 6 months because they only need the money for the new project in 12 months time.
It is only then that they will need to convert the Yen into ARD because it is only in 12 months time that they will invest in the Airone project.Sir, I’m referring to part c i) spot cross rate.
92.70 / 132.4 =0.70
95.6/ 129.2= 0.741I don’t understand why using 92.70/ 132.4 ?
Using 132.4, is it becuz of that we need to sell off the EUR 80m received to buy Yen?
Then why using 92.70 instead of 95.6??
I think that the following previous post of mine will answer your question 🙂
Sir , as u said ” It doesn’t matter which way round you quote the rate. What matters is that you are doing the conversion correctly. ” which means if I use cross rate JPY/ARD instead of ARD/JPY , even the answer is different I will still get marks right ?
If I use ARD per JPY ,
Expected ARD/JPY conversion spot rate in 12 months = 0·70 x 1·09/1·015 = 0·75
Investment amount required = ARD 10,150m/0·75 = JPY 13,533mIf I use JPY per ARD
Expected ARD/JPY conversion spot rate in 12 months = 1.35 x 1.09/1.015 = 1.45
Investment amount required = ARD 10150m x 1.45 = JPY 14717.5mBoth answers will be accepted . Am I right ? TQ in advance !
John Moffat wrote:Yes you are correct.
Sir , can u take a look at 2019 sept/dec (Okan Co) , the inflation rate for UK and Yasailand are 2% and 4% . But the answer shows that the ppp calculation is 3.03 x 1.04/1.02 and the explanation was because its stated the exchange rate is Y$/UK (3.03 per 1) , thus the Uk currency is the base currency so thats why it is 1.04 /1.02 instead of 1.02/1.04.
So in this case of Washi Co , U said that both answers will be accepted regardless of using ARD/JPY or JPY/ARD , I was wondering if i were to use JPY/ARD , shouldnt it be 1.35x 1.015/1.09 as ARD being the base currency ? I would like to know the concept behind it or I think I might missed something .
The two are not really comparable because in Okan a cross rate was not required. It is required in Washi because there is no direct exchange rate quotes and the problem is that strictly different cross rates should have been used for the receipts than for the payments.
I understand about the Okan does not required cross rate . But I don’t understand why they use 1.04/1.02 instead of 1.02/1.04 because as far as I know in that ques YR should be the base currency thus 1.02/1.04 . I dk which part of it i messed up
The exchange rate is quoted against the Pound (Y3.03 equals 1 Pound). Therefore pound is the base currency.
Have you watched my free lectures on this?
Yeap I did watched your free lectures , that’s why I need to make myself more clear about this . If that’s the case , doesn’t it makes the ARD to be base currency as I’m using JPY/ARD ( which quoted against ARD ) for Washi ques . This is the part where I’m confused as I learned it from your free lectures that to determine the base currency , we have to look at the exchange rate on which currency quoted against which currency. For example , USD quoted against pound (US/pound) , thus pound will be our base currency isnt it ?
You are confusing me a lot, because your last post said that you did not understand the calculation in Okan, and I explained.
In Washi, if you are using the exchange rate as the number of JPY equal to 1 ARD, then ARD is the base currency.
Maybe I expressed it wrongly , I do understand the calculation in Okan , just find it confusing when comes to determine the base currency . Anyway , I have understood what u explained . Thx alot ! <3
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