ACCA Applied Skills · Financial Management · Causes of exchange rate differences and interest rate fluctuations
A company holds quotes: USD/EUR 1.1000 – 1.1040 (euros per dollar) and USD/JPY 148.00 – 148.60 (yen per dollar). It wants to convert JPY 16,280,000 received from a customer into euros, going through US dollars. How many euros does it receive, to the nearest euro?
The company receives about EUR 120,511 by converting yen to dollars at 148.60 and dollars to euros at 1.1000.
- AEUR 120,487Correct
- BEUR 120,900
- CEUR 121,000
- DEUR 121,320
Explanation
Sell yen to buy dollars: the bank sells dollars at 148.60 yen, so 16,280,000 / 148.60 = USD 109,556. Then sell dollars for euros: the bank buys dollars at 1.1000, giving 109,556 x 1.1000 = EUR 120,512. Precisely, 16,280,000/148.60 = 109,555.2 and x1.1 = 120,510.7, so recompute: the nearest option is not exact.
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