Calculate the expected loss, if the hedging is not done by Motor Bikes Limited. How would the position change, if Motor Bikes Limited takes a…

Since the direct quote for Naira and is not available it will be calculated by cross exchange rate as follows: ₹/$ x $/Naira = ₹/Naira 84.00/1400 = 0.0600 Spot rate on date of export 1 Naira = 0.0600 Expected Rate of Naira for March 2025 = 0.0531 (₹ 85/Naira 1600) Forward Rate of Naira for March 2025 = 0.0555 (₹ 86/Naira 1550) (i) Calculation of expected loss without hedging ₹ Value of export at the time of export (₹ 0.0600 × Naira 3,00,00,000) 18,00,000 Estimated payment to be received on March 2025 (₹ 0.0531 x Naira 3,00,00,000) 15,93,000 Loss 2,07,000 Hedging of loss under Forward Cover ₹ Value of export at the time of export (₹ 0.0600 x Naira 3,00,00,000) 18,00,000 Payment to be received under Forward Cover (₹ 0.0555 x Naira 3,00,00,000) 16,65,000 Loss 1,35,000 By taking forward cover loss is reduced to 1,35,000. (ii) Actual Rate of Naira on March 2025 = 0.0541(86.50/Naira 1600) ₹ Value of export at the time of export (₹ 0.0600 × Naira 3,00,00,000) 18,00,000 Estimated payment to be received on March 2025 (₹ 0.0541 x Naira 3,00,00,000) 16,23,000 Loss 1,77,000 The decision to take forward cover is still justified. Note- This question can also be solved by rounding the Rupee-Naira exchange rate to three, four, or five decimal places.