Suppose you as a Banker entered into a Forward Purchase Contract for US $ 50,000 on 5th March with an export customer for 3 months at the rate of ₹ 59.6000. On the same day you also covered yourself in the market at ₹ 60

CS Professional · Banking - Law & Practice · PYQS · June 2023
Suppose you as a Banker entered into a Forward Purchase Contract for US $ 50,000 on 5th March with an export customer for 3 months at the rate of ₹ 59.6000. On the same day you also covered yourself in the market at ₹ 60.6025. However, on 5th May your customer comes to you and requests extension of the contract to 5th July. On this date (5th May) quotation for US$ in the market is as follows: Spot 59.1300/1400 Per US$ Spot/June 59.2300/2425 Per US$ Spot/July 59.6300/6425 Per US$ Assuming a margin 0.10% on buying and selling, determine the extension charges payable by the customer and arrive the New Rate quoted to the customer. Note: Rates to be rounded off to 4 decimals in multiples of 0.0025.

Answer & Explanation:

Cancellation of Original Contract The forward purchase contract shall be cancelled for the forward sale rate for delivery June: Particulars Amount in ₹ Inter Bank Forward Selling Rate ₹ 59.2425 Add: Exchange Margin (0.10% of 59.2425) ₹ 0.0592 Net amount payable by customer Per US$ ₹ 59.3017 Rounded off, the rate applicable is ₹ 59.3025 Particulars Amount in ₹ Buying US$ under original contract at original price ₹ 59.6000 Selling rate to cancel the contract ₹ 59.3025 Difference in US$ ₹ 00.2975 Exchange difference for US$ 50,000 payable by the customer is ₹ 14,875 (50,000 * 0.2975). Rate of booking New Contract The forward contract shall be rebooked with the delivery 15th July as follows: Particulars Amount in ₹ Forward buying rate (5th July) ₹ 59.6300 Less Exchange Margin (0.10% of 59.6300) ₹ 0.0596 ₹ 59.5704 Rounded off to ₹ 59.5700

Topics: Foreign Exchange Management

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