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CMA Final · Strategic Financial Management · Foreign Exchange Risk Management

Mahati Industries expects to receive USD 500,000 and pay USD 320,000, both due in 3 months. It hedges only the net exposure with a 3-month forward at ₹83.20/USD. What is the rupee amount locked in by the forward contract?

The forward locks in ₹14,976,000. Exposure netting offsets the USD 320,000 payable against the USD 500,000 receivable, leaving a net receivable of USD 180,000. Selling this forward at ₹83.20 gives the locked-in rupee amount.

  1. A₹14,976,000Correct
  2. B₹41,600,000
  3. C₹26,624,000
  4. D₹68,224,000

Explanation

Net exposure = 500,000 − 320,000 = USD 180,000 receivable, since the payable is met from the receipt. Forward sale = 180,000 × 83.20 = ₹14,976,000. ₹41,600,000 hedges only the receivable gross. ₹26,624,000 uses only the payable. ₹68,224,000 adds the two gross amounts.

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