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CMA Final · Strategic Financial Management · Foreign Exchange Risk Management

An Indian firm has a receivable of EUR 400,000 due in 3 months. Spot EUR/INR is 90.00/90.40 (bid/ask). The 3-month forward is 90.90/91.50. The firm sells the euros forward. How many rupees will it receive?

The firm receives Rs 3,63,60,000. When an exporter sells euros forward, the bank buys at its bid rate of Rs 90.90 per euro, so 400,000 multiplied by 90.90 gives the rupee proceeds. The ask rate applies only when the customer buys euros.

  1. ARs 3,63,60,000Correct
  2. BRs 3,66,00,000
  3. CRs 3,61,60,000
  4. DRs 3,60,00,000

Explanation

The bank buys euros from the exporter at the bid forward rate of Rs 90.90. 400,000 x 90.90 = Rs 3,63,60,000. Using the ask 91.50 gives Rs 3,66,00,000 (wrong side of the quote); using spot ask gives Rs 3,61,60,000.

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