Question 1

Section B - Case 3: Nexus Co

Nexus Co is a UK-based manufacturer of specialized robotics. The company exports to Europe and imports components from Japan. The home currency is the GBP (£).

Nexus Co is due to receive €500,000 from a European customer in 3 months. 
Exchange rates available:
Spot rate (EUR/GBP): 1.1520 - 1.1560
3-month forward rate (EUR/GBP): 1.1450 - 1.1500

If Nexus Co uses a forward market hedge, what will be the guaranteed GBP receipt?

Accepted Answer

Identify the correct forward rate to use. The bank always wins. If you are selling foreign currency to the bank, they will give you the lower amount of home currency. Divide by the higher rate.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using the 1.1450 rate, which is the rate the bank would use if Nexus were buying Euros.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FM — Financial Management Practice Exam 2

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