On January 28, 2023, an importer customer requested a Bank to remit Singapore Dollar (SGD) 2,500,000 under an irrevocable Letter of Credit (LC).…

CA Final · Advanced Financial Management · MTP · May 2024
On January 28, 2023, an importer customer requested a Bank to remit Singapore Dollar (SGD) 2,500,000 under an irrevocable Letter of Credit (LC). However, due to unavoidable factors, the Bank could affect the remittances only on February 4, 2023. The inter-bank market rates were as follows: January 28, 2023 February 4, 2023 US$ 1= 80.91/80.97 80.85/80.90 GBP £1 = US$ 1.7765/1.7775 US$ 1.7840/1.7850 GBP £1 = SGD 2.1380/2.1390 SGD 2.1575/2.1590 The Bank wishes to retain an exchange margin of 0.125% on ₹/ SGD. Required: Estimate how much does the customer stand to gain or lose due to the delay? (Note: Calculate the rate in multiples of 0.0001)

Suggested Answer and Working Notes:

On January 28, 2023, the importer customer requested to remit SGD 25 lakhs. To consider sell rate for the bank: US $= 80.97 Pound 1 = US$ 1.7775 Pound 1 = SGD 3.1380 Therefore, SGD 1 = (₹ 80.97 * 1.7775) / SGD 2.1380 = 67.3172 Add: Exchange margin (0.125%) ₹ 0.0841 67.4013 On February 4, 2023 the rates are US $= 80.90 Pound 1 = US$ 1.7850 Pound 1 = SGD 2.1575 Therefore, SGD 1 = (₹ 80.90 * 1.7850) / SGD 2.1575 = 66.9323 Add: Exchange margin (0.125%) ₹ 0.0837 67.0160 Hence, Gain to the importer- = SGD 25,00,000 (₹ 67.4013 - 67.0160) = 9,63,250

Topics: Foreign Exchange Exposure and Risk Management

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