ABC Ltd., a UK firm, has a receivable $ 20 Million due in 6 months. The company wants to cover full exposure. Following information are available:…

CA Final · Advanced Financial Management · PYQS · May 2025
ABC Ltd., a UK firm, has a receivable $ 20 Million due in 6 months. The company wants to cover full exposure. Following information are available: Spot rate 1$ = £ 0.7720 / £ 0.7840 6 months forward rate 1$ = £ 0.7910 / £ 0.8040 Interest rates are as follows: US UK 6 months deposit rate 4.50% p.a. 5.50% p.a. 6 months borrowing rate 6.00% p.a. 7.50% p.a. Following options on pound are available: Option Strike rate Price Call £ 0.8100 £ 0.01 Put £ 0.8100 £ 0.02 ABC Limited has forecasted the spot rates for 6 months as follows: Future Rates of 1$ Probability £ 0.7800 30%. £ 0.8100 50% £ 0.8300 20% From the information given above, choose the correct answer to the question No. 12 to 15:
(A) (A) £ 16.125 million
(B) (B) £ 16.50 million
(C) (C) £ 15.88 million
(D) (D) £ 15.70 million

Suggested Answer and Working Notes:

Correct Answer: Option (C)

(C) £ 15.88 million

Topics: Foreign Exchange Exposure and Risk Management

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