CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions
Himalaya Power Ltd obtains an ADB loan of USD 2,000,000 when USD 1 = Rs 80. At repayment, USD 1 = Rs 84. Ignoring interest and hedging, what is the extra rupee outflow due solely to exchange rate movement?
The extra outflow is USD 2,000,000 multiplied by the Rs 4 rise in the exchange rate, which gives Rs 80,00,000. The loan costs Rs 16 crore at drawdown and Rs 16.8 crore at repayment, so currency depreciation alone adds Rs 80 lakh.
- ARs 4,00,000
- BRs 80,00,000
- CRs 1,60,00,000
- DRs 8,00,000Correct
Explanation
Rupee cost at drawdown = 2,000,000 x 80 = Rs 16,00,00,000. At repayment = 2,000,000 x 84 = Rs 16,80,00,000. Difference = Rs 80,00,000. Check: 2,000,000 x 4 = 80,00,000. Hence the correct answer is Rs 80,00,000, which is option 2. Note: the answer index must match that option.
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