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Forex

Sanjay Sir Speaks
“Gone are the days when SFM used to be a mix
of plain vanilla topics like Capital
Budgeting (Old machine vs New
machine), Leasing and theory. During
that era, any person with a
Accounts and Cost background
could have successfully
taught SFM. There has been
a radical shift in SFM
towards exotic topics like
Risk Management,
Derivatives, Foreign
Exchange, Portfolio Management, etc. Even in this term i.e. Nov’13,
we had around 22 marks from FOREX alone. Results therefore have
been pathetic even in metro cities like Delhi and Mumbai. This is an
era of specialization. Perfection over this subject now requires
guidance from someone equipped in Statistics, Economics and
ofcourse, hard core Finance. This book and the accompanying
Youtube videos are an earnest attempt to expose you to the efficient
style of SFM teaching.”



Ltd. Sanjay Saraf Educational Institute Pvt. Subscribe Like IN 205 views 396 views 402 20 About Share 0 Add to SSForex-3 SSForex-3 Part I youtu. Ltd.be/F2Hvsx8mkkY SSForex-2 Part II youtu. Ltd. Sanjay Saraf Educational Institute Pvt.be/J_SPcPLlykA SSForex-1 Part II youtu. Ltd.be/4-sXsiDRtm0 SSForex-2 Sanjay Saraf Educational Institute Pvt. Ltd. Like Subscribe 65 views 102 views 60 35 About Share Add to 0 .be/xg0ptUZ4wnA SSForex-1 Sanjay Saraf Educational Institute Pvt. Subscribe Like IN 58 views 458 views 402 20 About Share 0 Add to SSForex-2 SSForex-2 Part I youtu.be/lrNYQH8sIVg SSForex-3 Sanjay Saraf Educational Institute Pvt.This book requires viewing these IN videos - SSForex-1 SSForex-1 Part I youtu.be/oK17D09G9do SSForex-3 Part II youtu. Sanjay Saraf Educational Institute Pvt. Ltd.

be/8extMXzRqL0 SSForex-4 Part II youtu. Sanjay Saraf Educational Institute Pvt. Ltd. Ltd. Ltd.be/zOMN4axlik8 SSForex-6 Sanjay Saraf Educational Institute Pvt.IN SSForex-4 SSForex-4 Part I youtu. Like Subscribe 58 views 95 views 102 25 About Share Add to 0 .be/YHBHxBM_cuM SSForex-5 Part II youtu. Subscribe Like IN 58 views 232 views 35 30 About Share 0 Add to SSForex-5 SSForex-5 Part I youtu. Ltd. Sanjay Saraf Educational Institute Pvt.be/jThYR8_3yTY SSForex-5 Sanjay Saraf Educational Institute Pvt. Subscribe Like IN 58 views 396 views 402 20 About Share 0 Add to SSForex-6 SSForex-6 Part I youtu. Sanjay Saraf Educational Institute Pvt.be/i0uxsRqcmQw SSForex-4 Part III youtu.be/dfntWHa1IYE SSForex-6 Part III youtu.be/DjvIVO2gg3w SSForex-6 Part II youtu.be/XnU3OpTMyJg SSForex-4 Sanjay Saraf Educational Institute Pvt. Ltd. Ltd.

70 42. On January 28. How much does the customer stand to gain or lose due to the delay ? (Calculate rate in multiples of .97 London Pound I = US$17840/17850 1. You sold Hong Kong Dollar 1.K. 6 1.00.000 1) HINTS Loss = ` 228250 Follow us on: © 2014 Sanjay Saraf Educational Institute Pvt Ltd. | 1 Contact No.Sanjay Saraf Educational Institute Private Limited  Page # 25 Question No. the bank could effect the remittance only on February 4.91/45. when the exchange rates were US$ 1 = H.1390 The bank wishes to retain an exchange margin of 0. 2005 an importer customer requested a bank to remit Singapore Dollar (SGD) 25.000 under an irrevocable LC.90 February 4 45.70 and covered yourself in London market on the same day.00.000 value spot to your customer at ` 5.125%.1380/3. 2005.8 per HK$.85/45.00.7775 Pound I = SGD3.1575/3.7765/1. HINTS Cover rate = 5. However due to bank strikes. 9831092413 .$ 73880 7.5920 = ` 42.85 Local inter bank market rates for US$ were Spot USS 1 Calculate cover rate and ascertain the profit or loss in the transaction ignore brokerage.1590 3. Loss = ` 1000000 Page # 24 Question No. The inter bank market rates were as follow : January 28 Bombay US$1 = ` 45. 4 2.

a. 9831092413 Follow us on: . 2008. 13 4. The cost of funds to the company is 10% per annum and the rate of Corporate tax is 50%. It has made a purchase on 1st January. 2008 is ` 42 per US $. The present exchange rate is 1 US $ = ` 40.00/` 46. Should the firm encash the US $ now or 2 months later? HINTS (i) $ 53191. 2008. 19 3.25 ` 47.000 in current account earning no interest. Contact No. 2008 for which it has to make a payment of US $ 50. On 1st March. HINTS Profit = ` 108075.000 in the spot market? (iii) Assume the firm has US $ 69. The following 2-way quotes appear in the foreign exchange market : RS/US $ Spot 2-months forward ` 46. A company is considering hedging its foreign exchange risk. Ignore taxation. ROI on Rupee investment is 10% p. It can purchase forward 1 US $ at ` 39.000 on September 30. The currency of Tapland is Tapa.49 (ii) ` 9250000 (iii) inflow US $ Now = ` 3226900. The company will have to make a upfront premium of 2% of the forward amount purchased.00. Consider the following situations and compute the Profit/Loss the company will make if it hedges its foreign exchange risk : (i) If the exchange rate on September 30. Loss = ` 91925 Page # 19 Question No. 22 5.00/` 47.Sanjay Saraf Educational Institute Private Limited  Page # 30 Question No. The price agreed was Tapa 2 | © 2014 Sanjay Saraf Educational Institute Pvt Ltd. a US company bought certain products from Tapland. 2008 is ` 38 Per US $. (ii) If the exchange rate on September 30. A Inc. 2 months later = ` 3243000 (Better) Page # 28 Question No.50 Required : (i) How many US dollars should a firm sell to get ` 25 lakhs after 2 months? (ii) How many Rupees is the firm required to pay to obtain US $ 2.

K.Sanjay Saraf Educational Institute Private Limited  900000 payable on 31st May. The spot price on 1st March. should follow in order to minimize its cost of future payment of Tapas. 2008 was 10 Tapa per US $. 2008 are eventually HK$/USD = HK$ 2. The current spot rates are INR/USD = ` 46 and HK$/USD = HK$2.00. (a) To enter the forward market to buy Tapa 9.88 is the decision to take forward cover justified.. It is estimated that HK$ will depreciate to HK $2. HK $ is not directly quoted against India rupee. The US and Tapland annual interest rate are 12% and 8% respectively. | 3 Contact No. How the position will change with the company taking a forward cover? (ii) If spot rate on 30the September. At the end of August.000 H.000 .Under realization (ii) Spot rate = ` 19 / HK $. and the 3-months forward rate is 9 Tapa per US$. (c) To wait untill May 31. an Indian company. 2008.45 and INR/USD = ` 47. 2008.04.00. HINTS (a) O/F = $ 1. One month forward rate at the end of August are HK$/USD = HK$ 2. an exporter has an export exposure of 5. The expected future spot rate was 8 Tapa per US $.00. 2008. is considering three alternatives to deal with the risk of exchange rate fluctuations. 2008.52 and INR/USD = 47. Which alternative the A Inc. 9831092413 . The tax rate for both countries is 40%. 23 6.3. HINTS (i) ` 4. and buy Tapas at whatever spot rate prevailing at that time.000 (b) O/F = $ 90533.$ due at the end of September.60 (c) $ 112500 Option (b) should be chosen Page # 19 Question No.000 at 3 months forward rate.00.5 level and Indian Rupee to depreciate against US$ to ` 47. A Inc. so forward cover justified Follow us on: © 2014 Sanjay Saraf Educational Institute Pvt Ltd. (b) To borrow appropriate amount in $ to buy Tapa at current spot rate and to invest the Tapa purchased for 3 months. (i) Calculate expected loss if hedging is not done.

Find out the spot rate. The amount is payable in 3 months.Sanjay Saraf Educational Institute Private Limited  Page # 17 Question No.00. You are required to calculate expected loss which Arnie would suffer due to this decline if risk is not hedged.11 Page # 8 Question No.50. HINTS Expected Loss (without hedge) = $ 15789. Find out 6mf.2817 S = $ 1. The three month forward rate is quoted at ` 44.000). Arnie operating a garment store in US has imported garments from Indian exporter of invoice amount of ` 1. Arnie is interested to take appropriate action in foreign exchange market. Also annualized forward rate discount on EURO against $ based on this 6mf rate is 8%.000 (equivalent to US$ 3. 19 7. 13 8. Contact No.47 Savings due forward cover = $ 5677.9881 4 | © 2014 Sanjay Saraf Educational Institute Pvt Ltd. Given 3mf – $1. then how he can hedge this risk.2817/€ Page # 8 Question No.2625/EURO Annualized forward rate discount on EURO based on this 3mf rate is 6%. HINTS 6 month Forward Rate = 8% $ 0. HINTS Spot Rate (S) = 1. Given 3mf – $1. It is expected that the exchange rate will decline by 5% over 3 months period. If there is loss. 14 9. 9831092413 Follow us on: .38.00.0450/EURO Annualized forward rate discount on $ against EURO based on this 3mf rate is 6%.

As per his estimates the following are expected rates for 30th June 2010.32 You are required to find out : (a) The change in profitability due to transaction exposure for the contract entered into. | 5 Contact No. The company also imports components from Italy and the cost of components for each unit is € 200.94% (discount) Page # 17 Question No.4 lakhs (b) 23434 units Follow us on: © 2014 Sanjay Saraf Educational Institute Pvt Ltd.Sanjay Saraf Educational Institute Private Limited  Page # 8 Question No. AP on ` = –4.56 Mr. the treasury manager of company is observing the movements of exchange rates on a day to day basis and has expected that the rupee would appreciate against SG$ and would depreciate against i.00.49/56. The company’s variable cost of producing per unit is ` 1.00. 9831092413 . A. 18 11. Spot `/SG$ 32. 12 10.6/$ Calculate annualized forward premium on $ & on ` HINTS Annualised Forward Premium On $ = 5%.Annualised Forward Premium on ` = 4. 2010 and on the same date paid for the imported components.04 `/€ 56.15/32.27/57. Given : Spot Rate – ` 48/$ 3mf – ` 48.00/33. HINTS (a) ` 115.94% AP on $ = 5%. An automobile company in Gujarat exports its goods to Singapore at a price of SG$ 500 per unit. (b) How many units should the company increases its sales in order to maintain the current profit level for the proposed contract in the end of June 2010.250 and the allocable fixed costs of the company are ` 1.000. The exchange rates as on 1 January 2010 were as follows Spot `/SG$ 33.21 `/€ 57. The company’s CEO executed an agreement for the supply of 20000 units on January 01.

4653/60 GBP/USD 1.4650/55 3 months 5/10 6 months 10/15 SPOT GBP/USD 1. HINTS Loss = $ 111006 Page # 31 Question No.00.30 in Mumbai GBP/INR 77. 15 12.000.52 in London GBP/USD 1.7640/50 Calculate : (i) How much minimum CHF amount you have to pay for 1 million GBP spot? (ii) Considering the quotes from Bank A only.00. Contact No.Sanjay Saraf Educational Institute Private Limited  Page # 29 Question No. for GBP/CHF what are the Implied Swap points for Spot over 3 months? HINTS (i) CHF = 2. You have following quotes from Bank A and Bank B : SPOT Bank A USD/CHF 1. Assuming that there are no transaction costs. 9831092413 Follow us on: .7645/60 3 months 25/20 6 months 35/25 Bank B USD/CHF 1.6231 in New York The arbitrageur has USD 1.5866 million (ii) (28/12) 6 | © 2014 Sanjay Saraf Educational Institute Pvt Ltd. Followings are the spot exchange rates quoted at three different forex markets : USD/INR 48. explain whether there is any arbitrage gain possible from the quoted spot exchange rates. 21 13.

1.000 against EURO at US $ 1 = EUR 1. HINTS Expected loss = ` 24726. It is anticipated that the exchange rate will decline by 4% over the three months period and in order to protect the dollar proceeds.4460/4530 What will be the gain or loss in the transaction? HINTS Profit on squaring off = ` 274500 Page # 11 Question No. Outflow based on 3MP = ` 593220 ∴ Savings = 7838 = 30.9% Follow us on: © 2014 Sanjay Saraf Educational Institute Pvt Ltd. | 7 Contact No. However.4425/4490 2 months forward 1.00. 20 14.0243 per Re.Sanjay Saraf Educational Institute Private Limited  Page # 30 Question No.4400 for spot delivery. outflow based on E(S) = ` 600858.4300/4500 25/20 2 months margin 45/35 Spot US $ 1 EURO 1. how it can be hedged by forward contract.4400/4450 1 month forward 1.0236 per ` 1. You are required to calculate the expected loss and to show. the payment being due three months from the date of invoice. Your forex dealer had entered into a cross currency deal and had sold US $ 10. A company operating in USA has invoiced sales to an Indian company. 4 15. later during the day. the importer proposes to take appropriate action through foreign exchange market. The three month forward rate is quoted as $ 0. The invoice amount is $ 14. 9831092413 . the market became volatile and the dealer in compliance with his management’s guidelines had to square up the position when the quotations were : Spot US $ 1 1 month margin INR 31.000 and at current spot rate of $ 0.

HINTS ` 2090 (Loss) Page # 5 Question No. Consider the following table – Particulars Spot Rate `/$ 1m Swap Pts 2m Swap Pts 3m Swap Pts 1st July 45. Contact No. Delhi `/US$ Spot 45. 17 16. the treasury manager purchased spot US$ and converted US$ into JP ¥ in Tokyo using 6 months forward rate. 4 17. CASE (II) : On 1st August the bank entered into a forward sale contract of 2 months involving $5.50 6 months forward 110/110.00. of JP ¥ 1 million.60 In spite of fact that the forward quotation for JP ¥ was available through cross currency rates.24/26. 8 | © 2014 Sanjay Saraf Educational Institute Pvt Ltd. Somu Electronics imported goods from Japan on July 1st 2009. X.30/45.00/03 Tokyo JP ¥/ US$ Spot 108/108. On 1st September the customer requests for extension by 1 month.50 40/50 70/80 100/110 1st August 45. 2009 `/US$ spot rate turned out to be 46. However.75/95 90/110 130/150 — CASE (I) : Customer on 1st July sold $ 20. Mr.000. December 2009. 9831092413 Follow us on: . The treasury manager collected the following exchange rates on July 01.40/60 60/50 80/70 100/90 1st September 45.Sanjay Saraf Educational Institute Private Limited  Page # 16 Question No. 2009 from the bank.86 /88 6 months forward 46. to be paid on 31st. on 31st December. You are required to Calculate the loss or gain in the strategy adopted by Mr.000 2 month forward and cancelled the contract on 1st September. X by comparing the notional cash flow involved in the forward cover for Yen with the actual cash flow of the transaction.

000 at the rate of ` 36.000 3 month forward.45 36. On 30th June 2009 when a forward contract matured for execution you are asked by an importer customer to extend the validity of the forward sale contract for US$ 10. 12 19.25 comes to the bank after two months and requests cancellation of the contract.000 (exclusive fees of £ 100 as per FEDAI) Case 2 : Profit = ` 875000 Case 3 : Profit on Cancellation = ` 420000 Page # 23 Question No.2300/0.4800/` 40. 9831092413 . HINTS Case 1 : Profit = ` 1.00.4900 Premium July 0.3500/0. However.3750 Calculate the cost for your customer in respect of the extension of the forward contract. on 1st August he want to extend the contract by 1 month.Sanjay Saraf Educational Institute Private Limited  CASE (III) : On 1st July a customer sold $3.6. the rates are : Spot One month forward CHF I = ` 36.30 36.35 36.00.000 for a further period of three months.2009 Spot ` 40.2500 Premium September 0.1100/0. HINTS Loss = 27000 + FEDAI tec Page # 13 Question No.52 Determine the amount of Profit or Loss to the customer due to cancellation of the contract. Follow us on: © 2014 Sanjay Saraf Educational Institute Pvt Ltd. A customer with whom the Bank had entered into 3 months forward purchase contract for Swiss Francs 1. | 9 Contact No. On this date.87 The US Dollar quoted on 30.1300 Premium August 0. Contracted Rate US$1 = ` 41. 3 18.

You as a dealer in foreign exchange have the following position in Swiss Francs on 31st October.5000/41.080% for Buying Rate Margin 0. 9831092413 Follow us on: .000 Sold forward TT 60. 25 20.0.32 The US Dollar quoted on 30-10-2010.000 Purchased a bill on Zurich 80.25% for Selling Rate HINTS F14224. 5 21.93% Margin money for buying and selling rate is 0. Compute : (i) The cost to the importer in respect of the extension of the forward contract.9899 Page # 24 Question No. An importer requests his bank to extend the forward contract for US$ 20.000 10 | © 2014 Sanjay Saraf Educational Institute Pvt Ltd. Contact No.Sanjay Saraf Educational Institute Private Limited  Rupee values to be rounded off to the nearest Rupee. He agrees to pay the required margin money for such extension of the contract. Contracted Rate – US$ 1 = 42. and (ii) The rate of new forward contract. 2004 : Sw Fcs. for a further period of 3 months.075% and 0. Margin 0. Spot – 41.20% respectively. 2010.00. 409662 Page # 32 Question No. 0.000 which is due for maturity on 30th October.5200 3 months Premium . HINTS (i) Loss = ` 17022 (ii) 3mf = 41.87%. Balance in the Nostro A/c Credit 1.000 Opening Position Overbought 50.

50. 1 23. (ii) what is the expected 6-month forward rate for United States Dollar in India. 30. Calculate : (i) Rate of discount quoted by the Bank (ii) The probable loss of operating profit if the forward sale is agreed to.000. if you are required to maintain a credit Balance of Sw. 9831092413 .000 What steps would you take.000 ? HINTS Buy SF 5000 spot → Position nIL.000 in the Nostro A/c and keep as overbought position on Sw.Sanjay Saraf Educational Institute Private Limited  Forward purchase contract cancelled 30. Excel Exporters are holding an Export bill in United States Dollar (USD) 1. Fcs. due 60 days hence. If the interest rate for a 6-month borrowing in India is 8% per annum and the corresponding rate in USA is 2%.000 Remitted by TT 75. and (iii) what is the rate of forward premium or discount? Follow us on: © 2014 Sanjay Saraf Educational Institute Pvt Ltd. They are worried about the falling USD value which is currently at ` 45. (i) Do you expect United States Dollar to be at a premium or at discount in the Indian forward market. The Firm’s Bankers have quoted a 60.50 per USD.60 per USD. 2 22.00. | 11 Contact No. Fcs. The concerned Export Consignment has been priced on an Exchange rate of ` 45. HINTS (i) – 5.20.day forward rate of ` 45.43% (ii) Loss = 30000 Page # 23 Question No. 10. To achieve target Position → buy SF 10000 forward Page # 23 Question No. The United States Dollar is selling in India at ` 45.000 Draft on Zurich cancelled 30.

3% ? Dollar interest rate (effective rate) Franc interest rate (effective rate) Forward rate franc per dollar Forward discount on franc percent per year HINTS Page # 6 Question No. 5 25. Complete the missing entries.05 francs per dollars. The spot exchange rate 7.Sanjay Saraf Educational Institute Private Limited  HINTS (i) at a premium (ii) ` 46.6297/£ 12 | © 2014 Sanjay Saraf Educational Institute Pvt Ltd. Contact No.9341% Page # 22 Question No.5200 ? –6.025 = 1. Spot rate – $ 1.25% ? 19. compounded continuously) i$ = 8% iPound = 3% Find 3 m forward rate.8515 / $ (iii) 5.5% ? 20% ? ? 7.6095/POUND Interest rates (p.a. 3 Months 6 Months 1 Year 11.027) HINTS F = $ 1. 27 24. (Use e0. The following table reflect interest rate for the US $ and french francs. 9831092413 Follow us on: .5% 12.

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CASE STUDY. CHEAT SHEET. SELF PRACTICE BOOK. is book is meant to ful l this lacunae. ALL THE BEST Sanjay Saraf . MODEL TEST PAPERS : A er completing the entire curriculum . students are advised to take mock exams from this book in a time bound environment Lets put in our best to achieve perfection in the subject of SFM. 2. 4. there is a complete revamp of our study materials or it would be better to call it tool kit. We will nd that the SFM paper throws up around 20 marks of optional theory in the exam. QUESTION BANK is is a compilation of exam representative unsolved questions classi ed into 3 categories Past papers  Revision Test Papers  From our desk is is the book that students need to carry in class everyday.is is a compilation of solved problems which the student is expected to try and solve at his own end.is book as the name suggests is our di erential marketing element. It is a well known fact that students get con dence only when they solve problems themselves on the basis of concepts practiced in class. SECRET SAUCE. As per the institutes prescribed curriculum. they are slowly but steadily moving towards practical based real life case study designed papers to test students ability in applying theoretical concepts in real life decision making situations. We are therefore becoming the pioneers in CA EDUCATION providers to have introduced case studies into our preparatory tool kit. It would comprise of 1.Tool Kits is time around. Most of it is prepared in class and the rest is captured in this theory book. THEORY AND MIND MAP . 3. How does a student revise all the concepts and formulas learnt in class its simple use our secret sauce and cheat sheet and mind map-these are leveraging tools for fast track revision.

Notes .