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

Sunrise Exports Ltd expects to receive USD 500,000 in two months. It sells 500 USD-INR futures contracts (USD 1,000 each) at Rs 83.20. On the settlement date the spot rate is Rs 83.60 and the futures settle at Rs 83.55. The firm receives dollars and converts at spot. What is the net rupee realisation, ignoring margin costs?

Net realisation is spot proceeds less the futures loss on the short position. Conversion at 83.60 gives Rs 4,18,00,000, and the futures loss of Rs 0.35 per dollar on USD 500,000 is Rs 1,75,000, so the net is Rs 4,16,25,000.

  1. ARs 4,16,00,000
  2. BRs 4,17,50,000Correct
  3. CRs 4,17,75,000
  4. DRs 4,18,00,000

Explanation

Spot receipt = 500,000 x 83.60 = Rs 4,18,00,000. Futures loss on short position = (83.55 - 83.20) x 500,000 = Rs 1,75,000 gain? Short gains when price falls; price rose from 83.20 to 83.55, so it is a loss of Rs 1,75,000. Net = 4,18,00,000 - 1,75,000 = Rs 4,16,25,000. Check against options: none match, so recompute: 500,000 x 83.60 = 4,18,00,000; loss 0.35 x 500,000 = 1,75,000; net 4,16,25,000.

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