In this workout a US company has operations in the US and Europe and has no foreign exchange hedging Arrangements in place historical revenues and FX rates are provided below along with forecast Revenue growth at constant exchange rates. We're asked to adjust 20x1 revenue forecast to reflect current FX rates and we'll assume that the revenue splits are constant throughout 20x1. Let's scroll down and have a look at row 15.

The first thing that we see is that the US dollar has strengthened versus the Euro during 20x0. That means that the European revenues at the company's generating will be worth less in 20x1. We want to make sure our forecasts reflect current FX rates. So we need to set q1fx rates as the rates also for Q2 Q3 and Q4.

We can now calculate the year on year change in FX rates for each quarter during two of X1.

As we can see the most material change is for q1 and Q2. Whereas there's only a modest difference for Q3 and there is no change of tool for Q4 as the rate is exactly the same as for Q4 in the prior year. Now. Let's have a think about the impact of this FX change on revenues in each quarter and we'll scroll down for that.

In order to quantify the impact we know that 30% of revenues are generated in Europe. So we just need to multiply the FX rate change in each quarter by 30% So let's do that now and I'm going to lock my reference to 30% so I can reuse that formula. Then I multiply this by the year on year FX rate change and I'm now going to multiply this by minus 1 because I know a strengthening in the US dollar will give rise to an fx loss on my European revenues. That gives me an fx loss of 1.1% and I can then copy this formula to write to show the FX impact for each of the subsequent quarters. Now the forecast in our model don't yet reflect this impact. So let's pop that in now, we'll start by taking our FX impact and including that in our assumptions.

And then a year on year Revenue growth is going to be a constant currency Revenue growth assumption plus the FX impact.

The final thing to do is then simply take our Revenue growth assumption and apply that to the prior year revenues.

So we've now reflected current FX rates in our forecasts if we compare these forecasts to our previous forecasts. The new forecasts are lower. This is as we would expect because the FX rate has moved against the company and its European revenues are now worth less in US dollar terms.