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: (ii) By what percentage will the dollar currency change, over the next three months? (Answer with respect to bid rate)

Answer & Explanation:

(ii) Percentage change in dollar currency over three months (Bid Rate) Spot Bid Rate = ₹66.00 (from ₹66.00 - 25) Forward Bid Rate (3 months) = ₹67.00 (from ₹67.00 - 50) Percentage Change = [(Forward Bid Rate - Spot Bid Rate) / Spot Bid Rate] * 100 Percentage Change = [(₹67.00 - ₹66.00) / ₹66.00] * 100 Percentage Change = [₹1.00 / ₹66.00] * 100 Percentage Change = 1.51515% Annualized Percentage Change = 1.51515% * (12/3) = 1.51515% * 4 = 6.0606% Result is positive, hence appreciation of US$.

Topics: Forex Management

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