Brainworks software specializes in providing cloud computing solutions. Based out of Canada, the company is the market share leader world wide in CRM (Customer Relationship Manager) software for grocery chains. Brainworks recently took on a custom development project that will result in $50 Million dollars in USD revenue. In order to complete the development work, Brainworks has hired 500 software engineer in India. The cost of the engineers is expected to be 22% of the revenue. The project is to be completed in 90 days, when all of the funds will be received. Software engineers will be paid at the end of the project in US Dollars.

Exchange rate particulars

Spot Rate 30 Day Forward 60 Day Forward 90 Forward

USD/CAD 1.28 1.27 1.265 1.255

USD/INR 78.14 76.59 73.32 71.80

CAD/INR 61.13 59.59 56.89 55.22

Required

A. Assuming Brainworks would like to hedge the currency risk using forward contracts, determine the amounts and currency(s) that are required to be hedged. 4 Marks

B. Of the three currency quotes posted, determine the combination of currency that the bank considers the riskiest. 3 Marks

C. Assuming Brainworks hedges its revenue position, determine the premium cost in Canadian Dollars.