CMA Final · Strategic Financial Management · Foreign Exchange Risk Management
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 the firm hedges with a forward contract, how many rupees will it receive in 3 months?
The exporter receives Rs 1,67,20,000, because the forward contract fixes the conversion at Rs 83.60 per dollar. Multiplying USD 200,000 by 83.60 gives the rupee inflow. The spot rate is irrelevant to the hedged outcome.
- ARs 1,66,00,000
- BRs 1,67,20,000Correct
- CRs 1,66,60,000
- DRs 1,65,40,000
Explanation
A forward sale locks in the forward rate. 200,000 x 83.60 = Rs 1,67,20,000. Using the spot rate gives Rs 1,66,00,000, which ignores the forward premium and is wrong.
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