Question: An Indian company imported goods from US. The US manufacturer invoices the shipment in Dollar (USD), and the amount is USD 5 million. The importer

An Indian company imported goods from US. The US manufacturer invoices the shipment in Dollar (USD), and the amount is USD 5 million. The importer needs to pay the amount by 30 October 2023. The data regarding the futures contract as on 10 October 2023 is: Interbank Spot Market USD-INR 80.2725 - 80.2775 NSE futures: USD INR 281023 80.3175- 80.3250

Questions:

Explain the process of hedging with currency futures for the above case, if the spot rate turns out to be INR 79.1250 on 28th October. What is the notional loss/profit of the Indian company when compared to the actual spot rate on October 28th? (Assume that the futures settlement rate is the same as the spot rate on the contract expiry date.) Also, if the spot rate was 81.6250 on the expiry date, what would be the company’s notional profit for having decided to hedge the exposure?

Step by Step Solution

★★★★★

3.39 Rating (155 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Hedging with currency futures is a common risk management strategy used by companies to reduce or el... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

On January 1, 2009, Perry Company purchased 80% of Selby Company for $990,000. At that time Selby had capital stock outstanding of $350,000 and retained earnings of $375,000. The fair value of Selby...

Below are the information in regards to Mr. Khairuls cash & cash equivalents, investment assets as well as personal used assets. He is currently 60 years old and he plans to liquidate all of his...

A bakery with a December 31 st year end purchased new equipment on October 31 st 2000 for $10,000. This was their first equipment purchase. Required: What are the tax consequences if the equipment is...

The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...

Corporate Governance Caselet 1 Real Juice Company The company is in the business of producing and marketing fruit juices. Ritu joshi and Rohit Jain were looking at the ad copy and turning it over and...

What factors should be considered in deciding whether the cost of capital for a foreign affiliateshould be higher, lower, or the same as the cost of capital for a comparable domestic operation?...

where can I find the answers to case 6-1? (i downloaded this from CourseHero) CHAPTER 6 Foreign Currency Translation Examine the following financial performance commentary. It is extracted from Rio...

chapter 6 \" International Management It was once said that the sun never set on the British Empire. Today, the sun does set on the British Empire, but not on the scores of global empires, including...

Carlsons general business credit for the current year is $84,000 His net income tax is $190,000, tentative minimum tax is $175,000, and net regular tax liability is $185,000. He has no other tax...

Club Loop Corporation (CL) is a large owner, operator, and developer of golf clubs and resorts. The company is privately owned by several wealthy individuals. During the current year, according to...

Evaluate the integral ( 2 sin x - e ^ x ) dx from 0 to 3

If the regression output of a conjoint analysis indicates that the regression coefficient for presence of Feature A is 2.46 and the regression coefficient for price (coded in dollars) is 1.23, what...

L. Houts Plastics is a large manufacturer of injection-molded plastics in North Carolina. An investigation of the companys manufacturing facility in Charlotte yields the information presented in the...

What is dummy-variable coding? Would it be appropriate to use dummy-variable coding to code the price variable in a conjoint study designed to estimate the monetary value of a product attribute?

If each respondent in a conjoint study rated sixteen products and there were 200 respondents in the study, how many rows would there be in the data matrix resulting from the study?

What aspect of conjoint analysis makes it a more effective means of determining the value of a product feature than directly asking respondents how much they would pay for the feature?

Solve the inequality for x.-3x-32

Give an example of polarization that you have observed.

Explain how the time and timing are important in the employment interview.

What are the disadvantages of categorizing messages in the discussion on matching technology with the message?

An automatic filling machine is used to fill 1- liter bottles of cola. The machines output is approximately normal with a mean of 1.0 liter and a standard deviation of .01 liter. Output is monitored...

A company has just negotiated a contract to produce a part for another firm. In the process of manufacturing the part, the inside diameter of successive parts becomes smaller and smaller as the...

The postmaster of a small western town receives a certain number of complaints each day about mail delivery. Determine three- sigma control limits using the following data. Is the process incontrol?