Sfm study ( in grp)

and as per pppt

(1+rh)/(1+rf) = forward rate/spot rate

1.02/1.04 = F/1.35

Forward Rate = 1.3240

hey everyone,

Please find the Answer of the both question

Answer to Q1

 Soln.

Cash inflow on Purchase of demand bill     (50.11-0.01) x 100000 =   5010000

Bank need to reverse the bill Amt paid to Mr. A   at TT selling rate ( 50.21+0.01) X 100000 = 5022000

Add Bank Charges                                                                                                                                         250

Less: Amount realized            $100000

          Less Rebate 5%               $ 5000

          Less: remittance Charges $     50

         Net Amount realized        $ 94950 x (50.02-0.01)                                                               4748449.50 

Loss to Mr. A                                                                                                                                        273800.50

  Loss due to Exchange rate $ 100000 x (50.22-50.01)                                                                21000.00

Loss due to rebate & bank Charges ($ 5000 + $50) x 50.01            252550.50

                                 Bank charges on reversal                                        250.00                          252800.50

     Total Loss                                                                                                                                     273800.50

Answer to Q3

 Soln.

Spot rate according to PPP = 100 euros = 135$

                                              = 1 EUR = $1.35

 New Rate =

  Old Rate          

So expected rate = 1+0.02 x 1.35 

                                   1+0.04

                            = 1.3240

% change in Rate = (1+0.02)/ (1+0.04) - 1 = 1.923%

Real rate = [1+ Nominal rate     -1] x 100

                     1+ Inflation rate

           For Europe    = [1+0.05    -1] x 100

                                       1+0.04

                                 = 0.96%

         For US          = [1+0.03 -1] x 100

                                    1+0.02

                              = 0.98%

 But I have one doubt regarding que no 1.  :-

Mr. A asked the bank for  purchase of demand bill . ... then why bank had not bought at higher rate i.e

50.1200

and please tell me bit more about demand bill .......

Demand bill  is that bill which must be paid on demand by buyer of the goods  when payment is asked by supplier of the goods

For want of funds for working capital often customer ask banks to purchase/discount or negotiate the bill( invoice for goods sold to overseas customer) when banks buy from customer it will always give the worst rate or the the banks bid rate and not the offer rate

that's why we have taken 50.1100 rather than 50.1200..... ok

let's take 2 days break and will discuss 

• Leading and legging
• Netting
• forward contracts
• Roll over
• LIBOR

and the whole rest part  on thursday. Because we have to finish this forex chapter till Sunday ....what say frns .....

Sure D. our discussion will be cntinue with all members from wednesday

Let's finish and discuss Practice manual  and study material questions on tomorrow ....what say .... !!