Katfab Ltd., is facing the problem with respect to management of overseas transactions, which are denominated in the US $. The finance executive of Katfab Ltd. approached the banker, to deal with the transactions, and th

CS Professional · Financial, Treasury and Forex Management · PYQS · December 2019
Katfab Ltd., is facing the problem with respect to management of overseas transactions, which are denominated in the US $. The finance executive of Katfab Ltd. approached the banker, to deal with the transactions, and the following information was provided by the banker : Spot rate: ₹/US$ 66.00 - 25 Forward rate, applicable for end of three months from now: ₹/US$ 67.00 - 50 From the above information, you are required to answer the following questions: (i) By what percentage will the dollar currency change, over the next three months? (Answer with respect to ask rate)

Answer & Explanation:

(i) Percentage change in dollar currency over three months (Ask Rate) Spot Ask Rate = ₹66.25 (from ₹66.00 - 25) Forward Ask Rate (3 months) = ₹67.50 (from ₹67.00 - 50) Percentage Change = [(Forward Ask Rate - Spot Ask Rate) / Spot Ask Rate] * 100 Percentage Change = [(₹67.50 - ₹66.25) / ₹66.25] * 100 Percentage Change = [₹1.25 / ₹66.25] * 100 Percentage Change = 1.88679% Annualized Percentage Change = 1.88679% * (12/3) = 1.88679% * 4 = 7.547% (approx. 7.55%) Result is positive, hence appreciation of US$.

Topics: Forex Management

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