The following rates appear in Foreign Exchange Market : Spot Rate 2 Month Forward Rate ₹/1 US Dollar ₹ 64.00/₹ 64.20 ₹ 64.70/₹ 65.00 (a) How many US Dollars a Firm will have to sell to get ₹ 64.70 million after 2 months

No. of US Dollars a firm will sell to get ₹ 64.70 million after 2 months = 64.70 million/64.70 = 1 million US Dollars Rupees the firm will be required to pay to obtain US Dollar 2,00,000 in the spot market Cost of 2,00,000 = ₹ 2,00,000 × 64.20 = ₹ 1,28,40,000 Amount obtained in exchange of $ 50,000 = 50,000 × 64 = ₹ 32,00,000 Forward rates are at premium as forward rate is higher than the spot rate Bid premium = (64.70 - 64)/64 × (12/2) × 100 = 6.56% Ask premium = (65 - 64.20)/64.20 × (12/2) × 100 = 7.48%