CMA Final · Strategic Financial Management · Foreign Exchange Risk Management
An Indian exporter, Kaveri Textiles, will receive USD 200,000 in 3 months. The spot rate is ₹83.00/USD and the 3-month forward rate is ₹83.60/USD. If it hedges with a forward contract, the rupee amount it will receive is:
The exporter sells USD forward at ₹83.60, so it receives 200,000 × 83.60 = ₹16,720,000. The spot rate is not relevant because the forward contract fixes the rate for the future receipt, regardless of the spot rate at maturity.
- A₹16,600,000
- B₹16,720,000Correct
- C₹16,840,000
- D₹16,480,000
Explanation
A forward sale locks in the forward rate: 200,000 × 83.60 = ₹16,720,000. Using the spot rate (₹16,600,000) ignores the forward premium and so is wrong.
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