Question
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
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
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a The import bill is 1 million payable after 90 days Using forwards the rate of purchase of 1 millio...
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International Economics
Authors: Thomas A. Pugel
15th edition
73523178, 978-0077769529, 007776952X, 978-0073523170
