Dollarama is a Canadian dollar store retail chain which has operations in all over Canada. They import 55% of their goods from China. But due to current situation in the world, they are unable to import from China and planning to import from India. However, there are some obstacles. Chinese currency Renminbi (CNY) was a highly exchanged currency and somewhat stable whereas Indian currency Rupee (INR) is a volatile currency. They are contemplating that they will have to deal with exchange rate risk if they deal in Indian Rupees. They have researched the Indian Financial Market and the findings are below: 

1. There is no active derivatives market in India. 

2. Indian suppliers are very strict in their payment policy. They do not like altering in terms of dates. 

3. They are reluctant to deal with any other currencies than Rupees. 

Dollarama really wants to do business with Indian companies as it will be cheaper and similar quality as China. While doing business with China, they used to reduce the exchange rate risk by purchasing put options on Canadian Dollars which is not possible with India. 

Required: Describe a strategy Dollarama can apply to reduce exchange rate risk in Indian Rupees against Canadian Dollars. State your answer in reference to the strategies covered in "International Financial Management" course.

Answer rating: 100% (QA)

Since Dollarama wants to shop for Indian materials theyre going to need Indian Rupees to pay the sup... View the full answer