An Indian company is importing machine at a price of $ 5,00,000, payable after six months. The current…
By hedging the $5,00,000 payable via a 6-month forward contract at ₹ 64/$, the Indian importer locks in a rate that is ₹ 0.25/$ lower than the actual spot rate of ₹ 64.25/$…
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An Indian company is importing machine at a price of $ 5,00,000, payable after six months. The current exchange rate is ₹ 63 per US $. The forward contract for six months is available @ ₹ 64 per US $. If the rate turns out to be ₹ 64.25 per US $, the net gain to the importer in case he has entered into contract will be :
Answer and explanation
Correct answer A
By hedging the $5,00,000 payable via a 6-month forward contract at ₹ 64/$, the Indian importer locks in a rate that is ₹ 0.25/$ lower than the actual spot rate of ₹ 64.25/$ on the settlement date. The net gain from forward hedging is $5,00,000 × ₹ 0.25/$ = ₹ 1,25,000.
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