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Hi can someone help me with this..
LSBF rev kit qn 74: Letout SA
I need to pay £2.8m.
forward rate: 5.5640 – 5.5910 (MF/£1)
Can i interpret as i need to buy £ to pay £2.8m, but because the rates are quoted in terms of MF, i have to sell MF. Since im selling MF, bank will buy from me, so use bank’s buying rate.
is that right?
I do not have the LSBF revision kit.
However, what you say is correct – although more important is to actually choose the correct rate 🙂 (as you will have seen in the free lectures, I don’t think in terms of the bank’s buying or selling rate).
Assuming that the company paying in GBP’s has MF as their own currency, then it will cost them 2.8M x 5.5910 = MF 15.6548
Thanks John!
Sorry to trouble u with this but do u remember which free lecture is it as p4 exam is approaching soon..
It is the first of several lectures called foreign exchange risk management (in the first one I spend time first making sure everyone is clear about which rate to use).
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