CMA Final · Strategic Financial Management · Foreign Exchange Risk Management
Spot USD/INR is Rs 83.00 and the one-year forward rate is Rs 84.66. Ignoring compounding, what is the annualised forward premium on the dollar?
The forward premium is the forward minus spot divided by spot. Here 1.66 divided by 83 equals 2.0% for one year, so the dollar trades at a 2% annualised forward premium against the rupee.
- A2.0%Correct
- B2.5%
- C1.5%
- D1.66%
Explanation
Premium = (84.66 - 83.00)/83.00 = 1.66/83 = 0.02 = 2.0% for one year. The 1.66% option wrongly uses the rupee difference as a percentage.
Did you get it right without looking?
One question tells you little. A timed set on Foreign Exchange Risk Management shows your real accuracy, how long you take and where you lose marks.
More Foreign Exchange Risk Management questions
- An Indian exporter expects to receive USD 200,000 in 3 months. Spot is Rs 83.00/USD and the 3-month forward rate is Rs 83.60/USD. The export…
- Ganga Pharma must pay USD 500,000 in 3 months. It can buy a USD call option at strike ₹83.50 for a premium of ₹0.80 per USD, paid now. Ignor…
- An Indian exporter, Kaveri Textiles, expects to receive USD 200,000 in 3 months. Spot is Rs 83.00/USD. The 3-month forward rate is quoted at…
- Sundaram Exports expects to receive USD 200,000 in 3 months. Spot is Rs 83.00/USD. The 3-month forward rate is quoted at Rs 83.60/USD. If th…
- Spot GBP/INR is Rs 100. An importer must pay GBP 50,000 in 3 months and buys a call option on GBP with strike Rs 101 at a premium of Rs 1.50…
- Kaveri Textiles must pay USD 200,000 in six months. Spot rate is ₹83.00/USD. The six-month USD deposit rate is 4% p.a. and the INR borrowing…