Mr. PK imports raw materials from China, processes them in India and manufactures finished goods which are then sold in the American market. In this…
CA Final · Advanced Financial Management · PYQS · May 2025
Mr. PK imports raw materials from China, processes them in India and manufactures finished goods which are then sold in the American market. In this transaction what types of risk faced by Mr. PK?
Suggested Answer and Working Notes:
In this transaction, possible types of risks are: (i) Currency Risk (Exchange Rate Risk): Since raw materials imported from China and finished goods sold in the USA, fluctuation in exchange rates between Yuan, Indian rupee and US Dollar could impact cost and revenue. (ii) Political and Trade Risk: Changes in trade policies, tariffs, or political instability in China, India, or the U.S. may affect the cost and availability of raw materials or access to markets. (iii) Market Risk: The demand for the finished products in the US may fluctuate, affecting sales and profitability. (iv) Regulatory Risk – Mr. PK must comply with various regulations in each country, including import/export laws, quality standards, and customs regulations.
Topics: Foreign Exchange Exposure and Risk Management
Related Questions in this Topic
- ABN-Amro Bank, Amsterdam, wants to purchase ₹ 80 million for funding its account with Canara Bank, New Delhi. Out of th...
- ABC Ltd., a UK firm, has a receivable $ 20 Million due in 6 months. The company wants to cover full exposure. Following ...
- XYZ Ltd., an Indian company engaged in both export and import business, has secured a service contract in the United Sta...
- On 20.10.2024, the credit balance of an Indian bank in NOSTRO account with LMN Bank in London was £ 1,60,000 and the ove...
- An Indian exporting firm, Radhey & Sons exported dry fruits worth of AUD 1 million to an importer in Sydney. Radhey and ...