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CMA Final · Strategic Financial Management · The International Financial Environment

An Indian exporter quotes in euro. Bank quotes EUR/USD 1.0800 and USD/INR 83.00 (ignore spreads). A cross rate is used to price a EUR 50,000 invoice. Three months later EUR/USD is 1.0500 with USD/INR unchanged at 83.00. By how much (in INR) does the realised rupee value of the invoice fall short of the original?

The shortfall is Rs 1,24,500. The euro falls from 89.64 to 87.15 rupees, a drop of 2.49 per euro, and multiplying by 50,000 euros gives 1,24,500. The cross rate is EUR/USD multiplied by USD/INR.

  1. A1,24,500Correct
  2. B1,35,000
  3. C1,50,000
  4. D83,000

Explanation

Original EUR/INR = 1.08 x 83 = 89.64, value 44,82,000. Later EUR/INR = 1.05 x 83 = 87.15, value 43,57,500. Shortfall = 1,24,500. Option 1,35,000 uses a 0.03 x 83 x 50,000 miscalc; ignoring the cross rate gives other errors.

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