Foreign Exchange Rate Numerical

  1. XYZ exchange center sold Bahamian Dollar (BSD) 32,000 value spot to customer at INR Rs. 74.55 per BSD and covered itself in UK stock exchange on the same day, when the exchange rates were

GBP1 =BSD 1.38478 SELLING BSD 1.38498 BUYING

Local inter bank market rates for GBP were

Spot GBP 1 = INR Rs. 103.087 SELLING INR Rs. 103.289 BUYING

Calculate cover rate and ascertain the profit and loss in the transaction. Ignore Brokerage.


Cross Over Rates

Indian Rupee-GBP Selling RateINR Rs. 103.289
Bahamian Dollar – GBP Selling RateBSD 1.38478
Indian Rupees- Bahamian DollarINR Rs. 103.289/1.38478
INR Rs. 74.58
Cross Exchange Rate Conversion

Profit or Loss to the Bank

Amount received from customer ( 32,000*74.55)Rs. 2,385,600
Amount paid on cover deal (32,000*74.58Rs. 2,386,560
Loss in the dealRs. 960


2. ABC Limited is a listed real estate development company in Nepal, with a significant operation in Kathmandu Metropolitan Region. The company bas a export exposure of HKD 5,00,000 payable August 31, 2020. Hong Kong Dollar (HKD) is not directly quoted in Nepalese Rupees. The current spot rates are:

NPR/GBPRs. 164.72

It is estimated that Hong Kong Dollar will depreciated to 12.54 level and Nepalese Rupees to depreciate against GBP to Rs. 166.68. Forward rates for August 2020 are



a) Calculate the expected profit/loss, if the hedging is not done. How the position will change, if the firm takes forward cover?

b) If the spot rates on August 31 2020, 2014 are:

NPR/GBP= Rs. 165

HKD/GBP= HKD 11 Is the decision to take forward cover justified?


We first calculate the cross exchange rate between Nepalese Rupees and Hong Kong Dollar as follows:

NPR/GBP*GBP/HKD = 164.72/10.72 = Rs 15.365

Spot rate on date of export 1HKD = Rs 15.365

Expected Rate of HKD for August 2020 = 166.68/12.54 = Rs.13.29

Forward Rate of HKD for August 2020 = 167.30/11.77 = Rs. 14.21

a) Calculation of expected profit/loss (without Hedging)

Value of export at the time of export (Rs.15.365*5,00,000)Rs.76,82,500
Estimated payment to be received on August 2020 (Rs. 13.29*500,000)Rs.66,45,000
LossRs. 10,37,500

Hedging of loss under Forward cover

Value of export at the time of export (Rs.15.365*5,00,000)Rs.76,82,500
Payment conditions under forward cover (Rs. 14.21*500,000)Rs. 71,05,000
LossRs. 5,77,500

By considering Forward cover, the company can actually reduce its loss in the process by Rs. 460,000.

b) Actual rate of HKD on August 2020 = Rs. (165/11) = Rs. 15

Value of export at the time of export (Rs. 15.365*500,000)Rs. 76,82,500
Estimated payment to be received on August 2020 (Rs.15*500,000)Rs. 75,00,000

By considering Forward cover with given condition, the company incurred the loss by Rs. 1,82,500. Hence, the decision of forward cover is justifies

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