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CA Final · Advanced Financial Management · Foreign Exchange Exposure and Risk Management

Mehta Exports expects to receive USD 200,000 in three months and sells 200 USD-INR currency futures contracts (each of USD 1,000) at Rs 83.40. On the expiry date, the futures settle at Rs 83.90, and the spot rate is also Rs 83.90. Ignoring margins and transaction costs, what is the net INR realised from the receivable plus the futures position?

The net realisation is Rs 1,66,80,000. The spot sale yields Rs 1,67,80,000, but the short futures position loses Rs 1,00,000 as the rate rose by 50 paise. The hedge therefore locks in the original futures price of 83.40 on USD 200,000.

  1. ARs 1,66,80,000Correct
  2. BRs 1,67,80,000
  3. CRs 1,68,80,000
  4. DRs 1,66,00,000

Explanation

Sale of USD 200,000 in spot at 83.90 gives Rs 1,67,80,000. The short futures loses (83.90 - 83.40) x 200,000 = Rs 1,00,000. Net = Rs 1,66,80,000, which equals 200,000 x 83.40, so the hedge locks in the initial futures price. Rs 1,67,80,000 ignores the futures loss.

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