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Question 3b
Formulae & Tables
FM (F9) Formulae Sheet
You will get this Formula Table at the exam so learn well how to apply it in your FM (F9) Exam
PZK Co, whose home currency is the dollar, trades regularly with customers in a number of different countries. The company expects to receive €1,200,000 in six months’ time from a foreign customer. Current exchange rates in the home country of PZK Co are as follows:
Spot exchange rate: | 4·1780–4·2080 euros per $ |
Six-month forward exchange rate: | 4·2302–4·2606 euros per $ |
Twelve-month forward exchange rate: | 4·2825–4·3132 euros per $ |
Required:
(b) If the interest rate in the home country of PZK Co is 4% per year, calculate the annual interest rate in the foreign customer’s country implied by the spot exchange rate and the twelve-month forward exchange rate. (2 marks)