Distinguish between spot rates and forward rates, and explain when the use of each rate is appropriate.

SOLUTION AT Australian Expert Writers

1.ABC Company purchases goods from a foreign country and receives an invoice for
FC100 000. At the date of purchase the exchange rate is A$1 5 FC6.10; at the date of
settlement two months later the exchange rate is A$1 5 FC6.50. ABC Company complies
with the requirements of AASB 121.
(a) Does ABC Company gain or lose by the exchange rate fluctuation? Explain.
(b) Would your answer to (a) be different if the purchase price had been invoiced in
Australian dollars?
2. Distinguish between buying and selling rates of exchange. Explain why there is a difference
between the two rates.
3.Distinguish between spot rates and forward rates, and explain when the use of each rate
is appropriate.

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