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 · MTP · November 2026
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 following questions:
Suggested Answer and Working Notes:
Correct Answer: Option (C)
£ 15.88 million
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...
- 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 ...
- Green Agro Exports Ltd. entered a 3-month forward contract on January 1, 2026 to buy USD 2,00,000 (import payment due Ap...