The Rimjhim Traders, an Indian Importer Company has to settle an import bill of $1,30,000. The exporter has given two options to the importer: Pay immediately without any interest charges, or Pay after three months with

Evaluation of two options offered by exporters for settlement of payment: Option 1: Pay immediately without any interest charges: Bill value converted to Indian Rupee ($1,30,000 x 48.36) = ₹62,86,800 Add: Interest on overdraft @ 15% p.a. for 3 months (₹62,86,800 x 15% x 3/12) = ₹2,35,755 Total = ₹65,22,555 Option II Pay after 3 months with interest @ 5% p.a.: Bill Value = $1,30,000 Add: Interest @ 5% p.a. for 3 months = $1,625 Total = $1,31,625 Therefore amount to be paid under forward purchase contract: ($1,31,625 x 48.83) = ₹64,27,249 The Difference in outflow in option I and Option II: ₹65,22,555 - ₹64,27,249 = ₹95,306 Advice: It is advisable to settle bill after 3 months (under option II) since rupee outflow is less by ₹95,306.