CA Final · Advanced Financial Management · Risk Management
An Indian exporter, Kaveri Textiles Ltd, will receive USD 200,000 in three months and wants to remove the rupee uncertainty. Which of the following hedging actions fits this objective?
Kaveri Textiles should sell USD forward for three months. It holds a dollar receivable, so a forward sale fixes the rupee proceeds today. Buying dollars forward would add to the long position, and waiting for spot leaves the exposure unhedged.
- ABuy USD forward for delivery in three months
- BSell USD forward for delivery in three monthsCorrect
- CTake a USD loan and convert it to rupees after three months
- DWait and sell the dollars at the spot rate on receipt
Explanation
The exporter has a long USD position (a receivable). Selling USD forward locks the rupee amount to be received. Buying USD forward would double the exposure instead of covering it, and waiting leaves it open.
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