Hi,
Spot rate of BRL/AUD : 2.1128 and we are to borrow BRL 500,000, isn’t it equivalent to borrowing AUD 1,056,400(500,000*2.1128)?
I am confused if I am to multiply or divide it…
Thank you in advance
BRL is the price currency, AUD is the base currency. You exchange 2.1128 BRL for every 1 AUD. Borrowing 500,000 BRL is equivalent to borrowing 500,000 / 2.1128 = 236,652.8 AUD.
The way it should be read is 1 AUD buys 2.1128 BRL, so we need 236,652 AUD to buy 500K BRL (500,000/2.1128).
As well, note that if the exchange rate rises (lets say to 2.5), this means BRL has depreciated relative to AUD since 1 AUD can now purchase more BRL.
Ah Moonborne you just beat me to it…
Well, I’m glad you’re active and helping people out as exam day is getting closer!
Just to add: look at it from a fraction perspective: BRL/AUD = 2.1128 means that 2.1128 is the numerator (in the top of the fraction) and 1 is the denominator (in the bottom of the fraction). So BRL = 2.1128, AUD = 1.
Well of course I have to help out a fellow Schweser elitist!
And to add on a little more make sure to note that when finding exchange rates based on crossing a few currencies, that you just flip it to 1/2.1128 until you manipulate the formula to give the correct answer. Ex: AUD/USD = AUD/BRL * BRL/USD