ARMY INSTITUTE OF MANAGEMENT, KOLKATA FM-405, Assignment All questions are compulsory. Q.No.

1 [5 marks] A person gets an interest free loan of USD 3,00,000. Repayment is to be done in three equal half-yearly installments. Assume the following rates: A. Today : Six months forward rate 42 / 42.50 B. At the end of six months : Spot 43/43.10 Six months forward 43.40 / 43.50 C. At the end of one year : Spot 44/ 44.10 Six month forward 44.50 / 44.60 D. At the end of one & half year : Spot 45 / 45.10 Find the amount he has to pay in rupees in following three cases. Give your recommendations. i) No hedging ii) Rupee roll over forward iii) Three separate forward contracts, one today, one after six months and one after one year from today. (Ignore bank commission) Q. No. 2 [5 marks] M/s Omega Electronics Ltd exports air-conditioners to Germany by importing the components from Singapore. The company is exporting 2400 units at a price of Euro 500 per unit. The cost of imported components is S$ 800 per unit, The fixed cost and other variable cost per unit are Rs. 1000 and Rs. 1500 respectively. The cash-flows in foreign currencies are due in six months. The current exchange rates are as follows: Rs./Euro Rs./S$ After six months Rs./Euro Rs./S$ 51.50/55 27.20/25 the exchange rates turn out as follows: 52.00/05 27.70/75

(1) You are to calculate the gain/loss due to transaction exposure. (2) Based on the following additional information calculate the loss/gain due to transaction and operating exposure if the contracted price of the air conditioner is Rs.25,000. (i) the current exchange rate is :

Rs./Euro 51.75/80 Rs./S$ 27.10/15 (ii) Price elasticity of demand is estimated to be 1.5. (iii) Payments and receipts are to be settled in six-months.