Mr. H has Treasure for your bank working under you sold HK$ 10 million value Spot to your customer at 10.55/ HK$ and covered yourself in the London…

CA Final · Advanced Financial Management · MTP · November 2024
Mr. H has Treasure for your bank working under you sold HK$ 10 million value Spot to your customer at 10.55/ HK$ and covered yourself in the London market on the same day when the exchange rates were: US$ 1 = HK$ 7.8880 / 7.8920 Local interbank market rates for US$ were: Spot US$ 1 = 82.70 / 82.85 Required: (i) Calculate Cover Rate (ii) Calculate Profit or loss in the transaction (iii) Do you agree with the views of the Internal Auditor that Mr. H has a speculative nature? Note: Ignore brokerage.

Suggested Answer and Working Notes:

(i) Rupee – Dollar Selling Rate: = 82.85 Dollar – Hong Kong Dollar Buying Rate: = H.K.$ 7.8880 Hong Kong Dollar (Selling) Cross Rate: = 82.85 / 7.8880 = 10.5033 (ii) Profit / Loss to the Bank Amount received from customer (HK$ 10 million × 10.55) = 10,55,00,000 Amount paid on cover deal (HK$ 10 million × ₹ 10.5033) = 10,50,33,000 Profit to Bank = 4,67,000 (iii) To some extent, we agree with views of Internal Auditor as the gain on the same transaction is bit lesser keeping in view the amount involved.

Topics: Foreign Exchange Exposure and Risk Management

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic