CMA Final · Strategic Financial Management · Foreign Exchange Risk Management
An Indian importer owes USD 200,000 payable in 3 months. The spot rate is Rs 83.00/USD and the 3-month forward rate is Rs 83.60/USD. If the importer hedges with a forward contract, what is the rupee outflow at settlement?
The importer locks in the 3-month forward rate of Rs 83.60 per USD, so the payment is 200,000 x 83.60 = Rs 1,67,20,000. The spot rate is irrelevant to a forward hedge because the settlement rate is fixed at contract inception.
- ARs 1,66,00,000
- BRs 1,67,20,000Correct
- CRs 1,68,40,000
- DRs 1,66,60,000
Explanation
Forward hedge fixes the rate at Rs 83.60. Outflow = 200,000 x 83.60 = Rs 1,67,20,000. Using spot (Rs 1,66,00,000) ignores the forward premium and is wrong for a forward hedge.
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