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MAFA QUERY-FEMA urgent please

Sumi T S (Final Student) (55 Points)

26 April 2010

Dear friends, Mr.X in London has 10,000/- Swiss Francs. He wants to sell & buy GBP. The exchange rates are: GBP/CHF 2.3295 - 2.3326 How much he will get? please help me...

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8 Replies

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 26 April 2010

Ok, if he wants to buy GBP, he'll get 10000/2.3326 = 4287.06....

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Sumi T S (Final Student) (55 Points)
Replied 26 April 2010

Hi Dhiraj, Thanks for reply. Please note GBP is his local currency & the quote which given is indirect quote. and in London always using indirect quote. Is there any impact for this. If you don't mind,check the Nov-09 RTP first problem(swap). They have taken 2.3295 please. next week i have to attend the exam. I totally confused..Please....

Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 26 April 2010

answer will be 10,000/2.3295 =4292.767

Sumi T S (Final Student) (55 Points)
Replied 26 April 2010

Hi Manmohan, could you please explain how it is....

Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 26 April 2010

always use a simple trick

if rate is given

currency A / currency B = X / Y

then

if you want to buy currency B (i.e. sell currency A) use the ask rate(i.e the right one )Y in our case .

and if you want to buy currency A (i.e. sell currency B) use the bid rate (i.e the left one ) X in our case .

in your case rate given is GBP/CHF 2.3295 - 2.3326 and you want to buy GBP use the left rate i.e. 2.3295

this rule is applicable in all cases in entire forex chapter

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Sumi T S (Final Student) (55 Points)
Replied 26 April 2010

Hi Manmohan, that means we don't need to check quote is direct /indirect right? But still i have a doubt. see the May 2010 MAFA RTP. Pro No-4 Here,London based co has to buy USD. the quote is $1.5455 - 1.5609 that means GBP/USD = 1.5455-15609 . We need to buy USD so as per our trick, the rate is 1.5609 . But in the solution they have taken 1.5455 ? Why?... please help me

Hardeep (CA Final Student) (61 Points)
Replied 26 April 2010

Hi Lakshmi,

If the equation is given wihout equal to sign as per ur ist query :-exchange rates are: GBP/CHF 2.3295 - 2.3326

that means 1CHF=GBP 2.3295-2.23326 i.e GBP per CHF

and here we have to buy GBP so sell CHF using rate 2.3295

If equation had been given with eual to (=) sign like GBP/CHF = 2.3295 - 2.3326

then GBP =CHF 2.3295-2.3326

As far as ur 2nd query is concerned :-the quote is $1.5455 - 1.5609 i.e that means 1GBP =$1.5455-1.5609. we have to buy $ or we can say we have to sell GBP and rate will be 1.5455
.

We uses buy/sell rates by looking whether we have to buy unit currency or sell. Here unit currency is GBP. You are using buying rate for $ which u can use only after converting $ into unit currency i.e 1$ = GBP1/1.5609-1/1.5455.