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Hello sir,
I am a bit confused on the foreign exchange part , when do we multiply and when do we divide with the threshold of rates (i.e buy-sell)
Thank youu
In future, if you want me to reply then you must ask in the Ask the Tutor Forum – this forum is for students to help each other.
Whether to multiply or divide depends on which way round the exchange rates are given. I do spend time in the first of my free lectures on foreign exchange risk management explaining (with examples) how we decide which exchange rate to use, and how to apply it.
The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
First situation:
If the receipt is $5000 and the exchange rate is $/euro 1.5000, then you DIVIDE. You will get 3333.33 euros.
This is because one euro gets you $1.5000. (3333.33 euros multiply $1.5000 will be equal to $5000).
Second situation:
If the receipt is $5000 and the exchange rate is euro/$ 1.5000, then you MULTIPLY. You will get 7500 euros.
This is because one $ will get you 1.5000 euros ($5000 multiply with 1.5000 euros will be equal to 7500 euros).
Conclusion:
The tips I used is to take note of the currency of payment or receipt (in this case is $), and also the exchange rate (which sign comes first). If the currency of payment or receipt do not match the first sign that comes first, you multiply. If it matches, then you divide.Hi,
I have confirmed my reply to you with ACCA FM TUTOR John Moffat. He said it is correct 🙂
The link of his reply:
https://opentuition.com/topic/when-to-divide-or-multiply-foreign-exchange-rate/?ampI don’t know if you understand what I wrote but I hope it will help you or whoever that reads this 🙂
However, please do keep in mind that the exchange rate (how it is quoted) may be shown in a different way in the exam by the examiners
Eg, $1 = 1.5000 euro and many more (maybe)So, the tips may not work. My best advice to you, is to understand the logic behind the it. There is no other way…
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