Question
An Indian company receives a large export order payable
in USD after 6 months. The management fears rupee appreciation in this period. To hedge the risk, the treasury team uses a forward contract at ₹83/USD. However, on the settlement day, the spot rate is ₹81/USD. What is the financial implication of the hedge?Solution
Since the spot rate is ₹81 and the company is locked in at ₹83 via forward, they will receive less in comparison to the spot—resulting in an opportunity loss, though the hedge served its purpose of certainty.
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