Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance International and Trade – I - exam paper

= Rs.14.06 lakhs

\ Loss due to transaction exposure = 21.94 – 14.06

= Rs.7.88 lakhs

b. Profit based on new exchange rates

= 4,500

= 4,500 [7,000 – 6,162.50]

= Rs.37.69 lakhs

Profit after change of exchange rates at the end of 6 months

= 4,500

= 4,500 [7,000 – 7,375]

= Rs.20.36 lakhs

\ reduce in profit due to transaction exposure = 37.69 – 20.36

= Rs.17.33 lakhs

Current price of every unit in AUS$ = = AUS$ 207.10

After the change in exchange rate, price per unit in AUS$ = = AUS$ 205.88

\ % reduction in price = 0.59%

Increase in demand due to reduction price = 0.59 ´ 1.5

= 0.89%

\ size of the increased order = 4,500 ´ (1 + 0.0089)

= 4540.05

say 4,540 units

Profit = 4,540

= 4,540 [7,000 – 6,547.50]

= Rs.20.54 lakh

\ reduce in profit due to operating exposure

= Rs.37.69 lakh – Rs.20.54 lakh

= Rs.17.15 lakh

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5. The company can invest in home currency (Can $) at 8.4%, US $ at 4.0%, £ at 5.6% and Euro at 6.0% for six months.

I. Investment in Can $ 2500000 ´ = 2605000

Return after six months = 2605000 - 2500000

= Can $105000

II. Investment in US $

Surplus of Can$2.5 million is to be converted into US dollars and is invested in US dollars at 4.0%. The amount in US $ is coverted into Can $ by covering at six month forward rate.

Can $ 2500000 converted into US$ at the Can $/$

Spot selling rate =

Amount received in US$ = 2096436.06

Says $2096436

Invest at 4.0% for six months = 2096436 ´

= $2138364.72

Earning:   Approval pending.