CMA Final · Strategic Financial Management · Foreign Exchange Risk Management
The spot rate is ₹83.00 per USD and the 6-month forward rate is ₹84.66 per USD. What is the annualised forward premium on the USD, computed on the spot rate using simple interest?
The annualised forward premium is 4.00%. The six-month premium is 1.66 on a spot of 83, which is 2%, and doubling it for a full year gives 4%. The base is the spot rate, and the periodic premium must be annualised.
- A4.00%Correct
- B2.00%
- C3.92%
- D8.00%
Explanation
Premium for 6 months = (84.66 − 83.00)/83.00 = 1.66/83 = 2%. Annualised = 2% × 12/6 = 4%. Choosing 2.00% forgets to annualise. Choosing 3.92% wrongly uses the forward rate as the base.
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
- Sagar Ltd will pay USD 100,000 in 3 months. Spot is Rs 83.00/USD and the 3-month forward is Rs 83.50. A 3-month call option on USD with stri…
- Spot USD/INR is Rs 82.00. The 6-month interest rates are 8% p.a. in India and 4% p.a. in the USA. Using simple interest-rate parity for a 6-…
- An Indian firm has a USD receivable. Spot is Rs 80.00/USD. Annual inflation expected is 6% in India and 2% in the US. Under relative purchas…
- A firm has a net receivable of USD 1,000,000 and a net payable of USD 400,000, both due in 3 months. The forward rate is Rs 83.40 per USD. I…
- Spot is Rs 83.00/USD. India's expected inflation is 6% p.a. and US expected inflation is 2% p.a. Under relative purchasing power parity, the…
- 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 f…