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    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 â‚ą83/USD. However, on the settlement day, the spot rate is â‚ą81/USD. What is the financial implication of the hedge?
    A Company makes a loss of â‚ą2 per USD Correct Answer Incorrect Answer
    B Company makes a gain of â‚ą2 per USD Correct Answer Incorrect Answer
    C No gain or loss Correct Answer Incorrect Answer
    D The contract is canceled Correct Answer Incorrect Answer
    E Company incurs gain based on spot rate Correct Answer Incorrect Answer

    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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