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ACCA Strategic Professional · Advanced Financial Management · Management of international trade and finance

Kestrel plc, a UK company, sells goods to Switzerland and buys materials from Switzerland. Over the next six months it expects to receive CHF 3,000,000 and pay CHF 2,200,000. The spot rate is CHF 1.50 per £1. If the Swiss franc weakens by 10% in value against sterling (new rate CHF 1.65 per £1) and the cash flows occur at the new rate, what is the change in the sterling net receipt compared with spot?

This item is flawed.

  1. AA fall of £90,909 approx
  2. BA fall of £53,333 approxCorrect
  3. CA rise of £53,333 approx
  4. DA fall of £80,000 approx

Explanation

Net CHF receipt = 800,000. At 1.50: £533,333. At 1.65: £484,848. Fall = £48,485. This does not match any option exactly, so the key is only approximate to the intended netting concept.

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