10. Shanti exported 400 pieces of a designer jewellery to USA at $ 400 each. To manufacture and design this jewellery she imported raw material from…

CA Final · Advanced Financial Management · RTP · September 2025
10. Shanti exported 400 pieces of a designer jewellery to USA at $ 400 each. To manufacture and design this jewellery she imported raw material from Japan of the cost of JP¥ 12000 for each piece. The labour cost and variable overhead incurred in producing each piece of jewellery are - 2,600 and 1300respectively. Suppose Spot Rates are: ₹/ US$ ₹ 80.00 -81.00 JP¥/ US$ JP¥ 135 – JP¥ 140 Shanti is expecting that by the time the export remittance is received and payment of import is made the expected Spot Rates are likely to be as follows: ₹/ US$ ₹ 83.90 -84.25 JP¥/ US$ JP¥125 – JP¥ 131 You are required to calculate the resultant transaction exposure.

Suggested Answer and Working Notes:

10. Profit as per Spot Rates ₹ Sales Revenue (US$ 400 X 400 X 80) 1,28,00,000 Less: Cost of Imported Raw Material (400 X 12000 / 135 X 81) 28,80,000 Labor Cost (400 X 2,600) 10,40,000 Variable Overheads (400 X 1300) 5,20,000 Profit 83,60,000 Profit as per expected Spot Rates ₹ Sales Revenue (US$ 400 X 400 X 83.90) 134,24,000 Less: Cost of Imported Raw Material (400 X 12000 / 125 X 84.25) 32,35,200 Labor Cost (400 X 2,600) 10,40,000 Variable Overheads (400 X 1300) 5,20,000 Profit 86,28,800 Increase/ (Decrease) in Profit due to Transaction Exposure (₹ 86,28,800 - 83,60,000) = 2,68,800

Topics: Foreign Exchange Exposure and Risk Management

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