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CMA Final · Strategic Financial Management · Forwards and Futures

Ananya Exports sells goods and expects USD 500,000 in 3 months. Spot is ₹83.00/USD. The 3-month USD forward rate is ₹83.60. She hedges with a forward sale. After 3 months the spot is ₹84.20. What is the rupee gain from hedging compared with remaining unhedged?

Hedging results in a ₹3,00,000 loss relative to staying unhedged. The forward locks in 83.60 per dollar, giving ₹4.18 crore, while the later spot of 84.20 would have produced ₹4.21 crore. The rupee depreciated beyond the forward rate, so the hedge cost an opportunity gain.

  1. A₹3,00,000 gain
  2. B₹3,00,000 lossCorrect
  3. C₹6,00,000 gain
  4. D₹3,00,000 gain only if spot had fallen

Explanation

Hedged receipt = 500,000 x 83.60 = ₹4,18,00,000. Unhedged receipt = 500,000 x 84.20 = ₹4,21,00,000. Hedging gives ₹3,00,000 less, so it is an opportunity loss. Using the original spot of 83.00 would wrongly give a gain of ₹3,00,000 the other way round, or 6 lakh.

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