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CMA Final · Strategic Financial Management · Foreign Exchange Market

An Indian exporter will receive USD 200,000 in three months. Spot USD/INR is 83.00 and the three-month forward is quoted at 83.60. If the spot on the receipt date is 84.10 and the exporter had hedged with the forward contract, what is the INR amount received?

The exporter receives Rs 1,67,20,000. Because the exporter sold USD forward at 83.60, the later spot rate of 84.10 is irrelevant. The amount is USD 200,000 multiplied by 83.60, so the hedge locks in the INR value.

  1. A1,66,00,000
  2. B1,67,20,000Correct
  3. C1,68,20,000
  4. D1,66,60,000

Explanation

A forward hedge locks the rate at 83.60, so receipt is 200,000 x 83.60 = 1,67,20,000. The 1,68,20,000 option uses the later spot, which ignores the hedge. The 1,66,00,000 option uses the old spot.

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