XP Pharma Ltd., has acquired an export order for 10 million for formulations from a European company. The Company has also planned to import bulk…

CA Final · Advanced Financial Management · RTP · January 2026
XP Pharma Ltd., has acquired an export order for 10 million for formulations from a European company. The Company has also planned to import bulk drugs worth 5 million from a company in UK. The proceeds of exports will be realized in 3 months from now and the payments for imports will be due after 6 months from now. The invoicing of these exports and imports can be done in any currency i.e. Dollar, Euro or Pounds sterling at company's choice. The following market quotes are available. Spot Rate Annualised Premium ₹/$ 87.10/87.20 $ - 7% ₹/Euro 101.15/101.20 Euro - 6% ₹/Pound 116.65/116.75 Pound - 5% Advise XP Pharma Ltd. in which currency invoicing for both import and export should be opted for. (Exchange Rate including calculations should be upto two decimal places).

Suggested Answer and Working Notes:

(i) Proceeds of Exports in INR = 10 Million Position of Inflow under three currencies will be as follows: Currency Invoice at Spot Rate Expected Rate after 3-months Conversion in INR after 3-months $ 100,00,000/87.10 = $ 1,14,810.56 87.10 (1 + 0.07/4) = 88.62 88.62 x $ 1,14,810.56 = 1,01,74,511.83 € 100,00,000/101.15 = € 98,863.07 101.15 (1 + 0.06/4) = 102.67 102.67 x € 98,863.07 = 1,01,50,271.40 £ 100,00,000/116.65 = £ 85,726.53 116.65 (1 + 0.05/4) = 118.11 118.11 x £ 85,726.53 = 1,01,25,160.46 (ii) Payment of Import in INR = 5 Million Position of outflow under three currencies will be as follows: Currency Invoice at Spot Rate Expected Rate after 6-months Conversion in INR after 6-months $ 50,00,000/87.20 = $ 57,339.45 87.20 (1 + 0.07/2) = 90.25 90.25 x $ 57,339.45 = 51,74,885.36 € 50,00,000/101.20 = € 49,407.11 101.20 (1 + 0.06/2) = 104.24 104.24 x € 49407.11 = 51,50,197.15 £ 50,00,000/116.75 = £ 42826.55 116.75 (1 + 0.05/2) = 119.67 119.67 x £ 42,826.55 = 51,25,053.24 Advice: Since cash inflow is highest (₹ 101,74,511.83) in case of $ hence invoicing for Export should be in $. However, cash outflow is least (₹ 51,25,053.24) in case of £ the invoicing for import should be in £.

Topics: Foreign Exchange Exposure and Risk Management

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