CSEET · Economic and Business Environment · Indian Financial Markets
An Indian importer expects to pay US dollars to a foreign supplier after three months and wants to remove the risk of the rupee weakening in the meantime. Which step best achieves this?
The importer should buy dollars forward today for delivery in three months. This fixes the rupee cost of its dollar liability and removes the risk of rupee depreciation. Selling dollars forward, waiting for the spot market, or merely holding rupees would leave the exposure unhedged.
- ABuying dollars under a forward contract today for delivery after three monthsCorrect
- BSelling dollars under a forward contract for delivery after three months
- CWaiting and buying dollars in the spot market after three months
- DHolding rupee deposits until payment falls due
Explanation
The importer has a future dollar liability, so a rupee depreciation would raise its cost. Buying dollars forward locks the rate today. Selling dollars forward would add to the risk, and waiting for spot leaves the exposure open.
Did you get it right without looking?
One question tells you little. A timed set on Indian Financial Markets shows your real accuracy, how long you take and where you lose marks.
More Indian Financial Markets questions
- Which of the following functions is performed by the Reserve Bank of India rather than SEBI?
- In the structure of the Indian financial system, which of the following is best described as a financial intermediary rather than a financia…
- Which of the following is the most accurate description of how an efficient financial system supports economic growth?
- In the Indian foreign exchange market, entities authorised by the RBI to deal in foreign exchange with customers, such as designated banks, …
- In the Indian capital market, an Initial Public Offer (IPO) by an unlisted company is best described as a transaction in which:
- Which one of the following is a feature that distinguishes an Offer for Sale (OFS) from a fresh issue of shares in an IPO?