CMA Final · Strategic Financial Management · The International Financial Environment
A firm expects to receive US$2,00,000 in one year. The spot rate is ₹84.00/US$, the one-year forward rate is ₹85.50/US$. It hedges using a forward contract. The rupee amount locked in is:
Selling the expected dollars forward fixes the rupee receipt at the forward rate. Multiplying US$2,00,000 by ₹85.50 gives ₹1,71,00,000. Using the spot rate of ₹84 would give ₹1,68,00,000, but that rate is not what the hedge locks in.
- A₹1,68,00,000
- B₹1,71,00,000Correct
- C₹1,70,00,000
- D₹1,69,50,000
Explanation
A forward sale locks in the forward rate: 2,00,000 x 85.50 = ₹1,71,00,000. The spot-based figure of ₹1,68,00,000 ignores the forward rate and is wrong.
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