Maruti Suzuki Ltd. has imported machinery worth 1 million USD and the invoice is payable in 90 days. Current Spot rate in the market is USD/INR 75 while 90 Days forward is quoted at USD/INR 76. The prominent economists predict the spot rate after 90 days at USD/INR 76.5.   

Cost of Borrowing for Maruti in India is 10% and USD Interest Rate = 2%.   

A 90 days Call option with exercise price of USD/INR 75 for 100,000 USD is available at premium of INR 2. 

You are required to calculate impact on transaction exposure under following scenarios: 

a. Company decides to use Forwards & Options for hedging 

b. Company decides to use Money Market hedging

Answer rating: 100% (QA)

a The import bill is 1 million payable after 90 days Using forwards the rate of purchase of 1 millio... View the full answer