CMA Final · Strategic Financial Management · Foreign Exchange Market
An importer must pay USD 2,00,000 in three months. Spot is Rs 83.00 and the three-month forward is Rs 83.60. The importer buys forward. If the spot rate on the due date turns out to be Rs 84.10, what is the gain from the forward contract compared with buying at spot then?
The importer gains Rs 1,00,000. Buying forward fixes the cost at 83.60 per dollar, while the later spot rate is 84.10, saving 0.50 per dollar on 2,00,000 dollars.
- ARs 1,00,000Correct
- BRs 1,20,000
- CRs 20,000
- DRs 1,80,000
Explanation
Forward cost = 2,00,000 x 83.60 = Rs 1,67,20,000. Spot cost = 2,00,000 x 84.10 = Rs 1,68,20,000. Gain = Rs 1,00,000. Using 83.00 (spot today) as the base would wrongly give 1,20,000.
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