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 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 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 someone equipped in Statistics, Economics and ofcourse, hard core Finance. This book and the accompanying Youtube videos are an earnest ear nest attempt to expose you to the efficient style of SFM teaching.”
•
•
•
•
•
•
•
•
• • •
•
This book requires viewing these IN
videos -
SSForex-1
SSForex-1 Part I youtu.be/J_SPcPLlykA
SSForex-1 Part II youtu.be/xg0ptUZ4wnA
SSForex-1 Sanjay Saraf Educational Institute Pvt. Ltd. SanjaySarafEducational InstitutePvt.Ltd.
Subscribe
Like
IN
58 views
458 views
402
20 About
Share
0
Add to
SSForex-2
SSForex-2 Part I youtu.be/F2Hvsx8mkkY
SSForex-2 Part II youtu.be/4-sXsiDRtm0
SSForex-2 Sanjay Saraf Educational Institute Pvt. Ltd. SanjaySarafEducational InstitutePvt.Ltd.
Subscribe
Like
IN
205 views
396 views
402
20 About
Share
0
Add to
SSForex-3
SSForex-3 Part I youtu.be/oK17D09G9do
SSForex-3 Part II youtu.be/lrNYQH8sIVg
SSForex-3 Sanjay Saraf Educational Institute Pvt. Ltd. SanjaySarafEducational InstitutePvt.Ltd.
Like
Subscribe
65 views
102 views
60
35 About
Share
Add to
0
IN
SSForex-4
SSForex-4 Part I youtu.be/8extMXzRqL0
SSForex-4 Part II youtu.be/i0uxsRqcmQw
SSForex-4 Part III youtu.be/XnU3OpTMyJg SSForex-4 Sanjay Saraf Educational Institute Pvt. Ltd. SanjaySarafEducational InstitutePvt.Ltd.
Subscribe
Like
IN
58 views
232 views
35
30 About
Share
0
Add to
SSForex-5
SSForex-5 Part I youtu.be/YHBHxBM_cuM
SSForex-5 Part II youtu.be/jThYR8_3yTY
SSForex-5 Sanjay Saraf Educational Institute Pvt. Ltd. SanjaySarafEducational InstitutePvt.Ltd.
Subscribe
Like
IN
58 views
396 views
402
20 About
Share
0
Add to
SSForex-6
SSForex-6 Part I youtu.be/DjvIVO2gg3w
SSForex-6 Part II youtu.be/dfntWHa1IYE
SSForex-6 Part III youtu.be/zOMN4axlik8
SSForex-6 Sanjay Saraf Educational Institute Pvt. Ltd. SanjaySarafEducational InstitutePvt.Ltd.
Like
Subscribe
58 views
95 views
102
25 About
Share
Add to
0
Sanjay Saraf Educaonal Instute Private Limited
Page # 25 Question No. 6
1.
You sold Hong Kong Dollar 1,00,00,000 value spot to your customer at ` 5.70 and covered yoursel in London market on the same day, when the exchange rates were US$ 1
=
H.K.$
73880
7.5920
=
`
42.70
42.85
Local inter bank market rates or US$ were
Spot USS 1
Calculate cover rate and ascertain the profit or loss in the transaction ignore brokerage. HINTS Cover rate = 5.8 per HK$, Loss = ` 1000000
Page # 24 Question No. 4
2.
On January 28, 2005 an importer customer requested a bank to remit Singapore Dollar (SGD) 25,00,000 under an irrevocable LC. However due to bank strikes, the bank could effect the remittance only on February 4, 2005. Te inter bank market rates were as ollow : Bombay
US$1
=
January 28 ` 45.85/45.90
February 4 45.91/45.97
London
Pound I
=
US$17840/17850
1.7765/1.7775
Pound I
=
SGD3.1575/3.1590 3.1380/3.1390
Te bank wishes to retain an exchange margin o 0.125%. How much does the customer stand to gain or lose due to the delay ? (Calculate rate in multiples o .000 1) HINTS Loss = ` 228250
Follow us on:
© 2014
Sanjay Sara Educational Institute Pvt Ltd. | 1 Contact No. 9831092413
Sanjay Saraf Educaonal Instute Private Limited
Page # 30 Question No. 19
3.
Te ollowing 2-way quotes appear in the oreign exchange market : RS/US $
Spot
2-months orward
` 46.00/ ` 46.25
` 47.00/ ` 47.50
Required : (i) How many US dollars should a firm sell to get ` 25 lakhs afer 2 months? (ii) How many Rupees is the firm required to pay to obtain US $ 2,00,000 in the spot market? (iii) Assume the firm has US $ 69,000 in current account earning no interest. ROI on Rupee investment is 10% p.a. Should the firm encash the US $ now or 2 months later? HINTS (i) $ 53191.49 (ii) ` 9250000 (iii) inflow US $ Now = ` 3226900, 2 months later = ` 3243000 (Better)
Page # 28 Question No. 13
4.
A company is considering hedging its oreign exchange risk. It has made a purchase on 1st January, 2008 or which it has to make a payment o US $ 50,000 on September 30, 2008. Te present exchange rate is 1 US $ = ` 40. It can purchase orward 1 US $ at ` 39. Te company will have to make a upront premium o 2% o the orward amount purchased. Te cost o unds to the company is 10% per annum and the rate o Corporate tax is 50%. Ignore taxation. Consider the ollowing situations and compute the Profit/Loss the company will make i it hedges its oreign exchange risk : (i) I the exchange rate on September 30, 2008 is ` 42 per US $. (ii) I the exchange rate on September 30, 2008 is ` 38 Per US $. HINTS Profit = ` 108075, Loss = ` 91925
Page # 19 Question No. 22
5.
On 1st March, 2008, A Inc, a US company bought certain products rom apland. Te currency o apland is apa. Te price agreed was apa
2 | © 2014 Sanjay Sara Educational Institute Pvt Ltd. Contact No. 9831092413
Follow us on:
Sanjay Saraf Educaonal Instute Private Limited
900000 payable on 31st May, 2008. Te spot price on 1st March, 2008 was 10 apa per US $. Te expected uture spot rate was 8 apa per US $; and the 3-months orward rate is 9 apa per US$. Te US and apland annual interest rate are 12% and 8% respectively. Te tax rate or both countries is 40%. A Inc., is considering three alternatives to deal with the risk o exchange rate fluctuations. (a) o enter the orward market to buy apa 9,00,000 at 3 months orward rate. (b) o borrow appropriate amount in $ to buy apa at current spot rate and to invest the apa purchased or 3 months. (c) o wait untill May 31, 2008, and buy apas at whatever spot rate prevailing at that time. Which alternative the A Inc. should ollow in order to minimize its cost o uture payment o apas. HINTS (a) O/F = $ 1,00,000 (b) O/F = $ 90533.60 (c) $ 112500 Option (b) should be chosen
Page # 19 Question No. 23
6.
At the end o August, 2008, an Indian company, an exporter has an export exposure o 5,00,000 H.K.$ due at the end o September, 2008. HK $ is not directly quoted against India rupee. Te current spot rates are INR/USD = ` 46 and HK$/USD = HK$2.3. It is estimated that HK$ will depreciate to HK $2.5 level and Indian Rupee to depreciate against US$ to ` 47. One month orward rate at the end o August are HK$/USD = HK$ 2.45 and INR/USD = ` 47.04. (i) Calculate expected loss i hedging is not done. How the position will change with the company taking a orward cover? (ii) I spot rate on 30the September, 2008 are eventually HK$/USD = HK$ 2.52 and INR/USD = 47.88 is the decision to take orward cover justified. HINTS (i) ` 4,00,000 - Under realization (ii) Spot rate = ` 19 / HK $, so forward cover justified
Follow us on:
© 2014
Sanjay Sara Educational Institute Pvt Ltd. | 3 Contact No. 9831092413
Sanjay Saraf Educaonal Instute Private Limited
Page # 17 Question No. 19
7.
Arnie operating a garment store in US has imported garments rom Indian exporter o invoice amount o ` 1,38,00,000 (equivalent to US$ 3,00,000). Te amount is payable in 3 months. It is expected that the exchange rate will decline by 5% over 3 months period. Arnie is interested to take appropriate action in oreign exchange market. Te three month orward rate is quoted at ` 44.50. You are required to calculate expected loss which Arnie would suffer due to this decline i risk is not hedged. I there is loss, then how he can hedge this risk. HINTS Expected Loss (without hedge) = $ 15789.47 Savings due forward cover = $ 5677.11
Page # 8 Question No. 13
8.
Given 3m – $1.2625/EURO Annualized orward rate discount on EURO based on this 3m rate is 6%. Find out the spot rate. HINTS Spot Rate (S) = 1.2817 S = $ 1.2817/ €
Page # 8 Question No. 14
9.
Given 3m – $1.0450/EURO Annualized orward rate discount on $ against EURO based on this 3m rate is 6%. Also annualized orward rate discount on EURO against $ based on this 6m rate is 8%. Find out 6m. HINTS 6 month Forward Rate = 8% $ 0.9881
4 | © 2014 Sanjay Sara Educational Institute Pvt Ltd. Contact No. 9831092413
Follow us on:
Sanjay Saraf Educaonal Instute Private Limited
Page # 8 Question No. 12
10.
Given : Spot Rate – ` 48/$ 3m – ` 48.6/$ Calculate annualized orward premium on $ & on ` HINTS Annualised Forward Premium On $ = 5%,Annualised Forward Premium on ` = 4.94% AP on $ = 5%, AP on ` = –4.94% (discount)
Page # 17 Question No. 18
11.
An automobile company in Gujarat exports its goods to Singapore at a price o SG$ 500 per unit. Te company also imports components rom Italy and the cost o components or each unit is € 200. Te company’s CEO executed an agreement or the supply o 20000 units on January 01, 2010 and on the same date paid or the imported components. Te company’s variable cost o producing per unit is ` 1,250 and the allocable fixed costs o the company are ` 1,00,00,000. Te exchange rates as on 1 January 2010 were as ollows ` /SG$ Spot 33.00/33.04 56.49/56.56 ` /€ Mr. A, the treasury manager o company is observing the movements o exchange rates on a day to day basis and has expected that the rupee would appreciate against SG$ and would depreciate against i. As per his estimates the ollowing are expected rates or 30th June 2010. ` /SG$ Spot 32.15/32.21 ` /€ 57.27/57.32 You are required to find out : (a) Te change in profitability due to transaction exposure or the contract entered into. (b) How many units should the company increases its sales in order to maintain the current profit level or the proposed contract in the end o June 2010. HINTS (a) ` 115.4 lakhs (b) 23434 units
Follow us on:
© 2014
Sanjay Sara Educational Institute Pvt Ltd. | 5 Contact No. 9831092413
Sanjay Saraf Educaonal Instute Private Limited
Page # 29 Question No. 15
12.
Followings are the spot exchange rates quoted at three different orex markets : USD/INR
48.30 in Mumbai
GBP/INR GBP/USD
77.52 in London 1.6231 in New York
Te arbitrageur has USD 1,00,00,000. Assuming that there are no transaction costs, explain whether there is any arbitrage gain possible rom the quoted spot exchange rates. HINTS Loss = $ 111006
Page # 31 Question No. 21
13.
You have ollowing quotes rom Bank A and Bank B : SPO
Bank A USD/CHF 1.4650/55
3 months
5/10
6 months
10/15
SPO
GBP/USD 1.7645/60
3 months
25/20
6 months
35/25
Bank B USD/CHF 1.4653/60
GBP/USD 1.7640/50
Calculate : (i) How much minimum CHF amount you have to pay or 1 million GBP spot? (ii) Considering the quotes rom Bank A only, or GBP/CHF what are the Implied Swap points or Spot over 3 months? HINTS (i) CHF = 2.5866 million (ii) (28/12)
6 | © 2014 Sanjay Sara Educational Institute Pvt Ltd. Contact No. 9831092413
Follow us on:
Sanjay Saraf Educaonal Instute Private Limited
Page # 30 Question No. 20
14.
Your orex dealer had entered into a cross currency deal and had sold US $ 10,00,000 against EURO at US $ 1 = EUR 1.4400 or spot delivery. However, later during the day, 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 31.4300/4500 25/20
2 months margin
45/35
Spot US $ 1
EURO 1.4400/4450
1 month orward
1.4425/4490
2 months orward
1.4460/4530
What will be the gain or loss in the transaction? HINTS Profit on squaring off = ` 274500
Page # 11 Question No. 4
15.
A company operating in USA has invoiced sales to an Indian company, the payment being due three months rom the date o invoice. Te invoice amount is $ 14,000 and at current spot rate o $ 0.0243 per Re.1. It is anticipated that the exchange rate will decline by 4% over the three months period and in order to protect the dollar proceeds, the importer proposes to take appropriate action through oreign exchange market. Te three month orward rate is quoted as $ 0.0236 per ` 1. You are required to calculate the expected loss and to show, how it can be hedged by orward contract. HINTS Expected loss = ` 24726, outflow based on E(S) = ` 600858, Outflow based on 3MP = ` 593220 Savings = 7838 = 30.9%
∴
Follow us on:
© 2014
Sanjay Sara Educational Institute Pvt Ltd. | 7 Contact No. 9831092413
Sanjay Saraf Educaonal Instute Private Limited
Page # 16 Question No. 17
16.
Somu Electronics imported goods rom Japan on July 1st 2009, o JP ¥ 1 million, to be paid on 31st, December 2009. Te treasury manager collected the ollowing exchange rates on July 01, 2009 rom the bank. Delhi ` /US$ Spot 45.86 /88 6 months orward
46.00/03
okyo JP ¥/ US$ Spot
108/108.50
6 months orward
110/110.60
In spite o act that the orward quotation or JP ¥ was available through cross currency rates, Mr. X, the treasury manager purchased spot US$ and converted US$ into JP ¥ in okyo using 6 months orward rate. However, on 31st December, 2009 ` /US$ spot rate turned out to be 46.24/26. You are required to Calculate the loss or gain in the strategy adopted by Mr. X by comparing the notional cash flow involved in the orward cover or Yen with the actual cash flow o the transaction. HINTS ` 2090 (Loss)
Page # 5 Question No. 4
17.
Consider the ollowing table – Particulars Spot Rate ` /$ 1m Swap Pts 2m Swap Pts 3m Swap Pts
1st July 45.30/45.50 40/50 70/80 100/110
1st August 45.40/60 60/50 80/70 100/90
1st September 45.75/95 90/110 130/150 —
CASE (I) : Customer on 1st July sold $ 20,000 2 month orward and cancelled the contract on 1st September. CASE (II) : On 1st August the bank entered into a orward sale contract o 2 months involving $5,00,000. On 1st September the customer requests or extension by 1 month. 8 | © 2014 Sanjay Sara Educational Institute Pvt Ltd. Contact No. 9831092413
Follow us on:
Sanjay Saraf Educaonal Instute Private Limited
CASE (III) : On 1st July a customer sold $3,00,000 3 month orward. However, on 1st August he want to extend the contract by 1 month. HINTS Case 1 : Profit = ` 1,000 (exclusive fees of £ 100 as per FEDAI) Case 2 : Profit = ` 875000 Case 3 : Profit on Cancellation = ` 420000
Page # 23 Question No. 3
18.
A customer with whom the Bank had entered into 3 months orward purchase contract or Swiss Francs 1,00,000 at the rate o ` 36.25 comes to the bank afer two months and requests cancellation o the contract. On this date, the rates are : Spot
CHF I = ` 36.30
36.35
36.45
36.52
One month orward
Determine the amount o Profit or Loss to the customer due to cancellation o the contract. HINTS Loss = 27000 + FEDAI tec
Page # 13 Question No. 12
19.
On 30th June 2009 when a orward contract matured or execution you are asked by an importer customer to extend the validity o the orward sale contract or US$ 10,000 or a urther period o three months. Contracted Rate US$1 = ` 41.87 Te US Dollar quoted on 30.6.2009 Spot
` 40.4800/ ` 40.4900
Premium July
0.1100/0.1300
Premium August
0.2300/0.2500
Premium September
0.3500/0.3750
Calculate the cost or your customer in respect o the extension o the orward contract. Follow us on:
© 2014
Sanjay Sara Educational Institute Pvt Ltd. | 9 Contact No. 9831092413
Sanjay Saraf Educaonal Instute Private Limited
Rupee values to be rounded off to the nearest Rupee. Margin 0.080% or Buying Rate Margin 0.25% or Selling Rate HINTS F14224, 409662
Page # 32 Question No. 25
20.
An importer requests his bank to extend the orward contract or US$ 20,000 which is due or maturity on 30th October, 2010, or a urther period o 3 months. He agrees to pay the required margin money or such extension o the contract. Contracted Rate – US$ 1 = 42.32 Te US Dollar quoted on 30-10-2010. Spot – 41.5000/41.5200 3 months Premium - 0.87%, 0.93% Margin money or buying and selling rate is 0.075% and 0.20% respectively. Compute : (i) Te cost to the importer in respect o the extension o the orward contract, and (ii) Te rate o new orward contract. HINTS (i) Loss = ` 17022 (ii) 3mf = 41.9899
Page # 24 Question No. 5
21.
You as a dealer in oreign exchange have the ollowing position in Swiss Francs on 31st October, 2004 : Sw Fcs. Balance in the Nostro A/c Credit
1,00,000
Opening Position Overbought
50,000
Purchased a bill on Zurich
80,000
Sold orward
60,000
10 | © 2014 Sanjay Sara Educational Institute Pvt Ltd. Contact No. 9831092413
Follow us on:
Sanjay Saraf Educaonal Instute Private Limited
Forward purchase contract cancelled
30,000
Remitted by
75,000
Draf on Zurich cancelled
30,000
What steps would you take, i you are required to maintain a credit Balance o Sw. Fcs. 30,000 in the Nostro A/c and keep as overbought position on Sw. Fcs. 10,000 ? HINTS Buy SF 5000 spot → Position nIL. To achieve target Position → buy SF 10000 forward
Page # 23 Question No. 2
22.
Excel Exporters are holding an Export bill in United States Dollar (USD) 1,00,000, due 60 days hence. Tey are worried about the alling USD value which is currently at ` 45.60 per USD. Te concerned Export Consignment has been priced on an Exchange rate o ` 45.50 per USD. Te Firm’s Bankers have quoted a 60- day orward rate o ` 45.20. Calculate : (i) Rate o discount quoted by the Bank (ii) Te probable loss o operating profit i the orward sale is agreed to. HINTS (i) – 5.43% (ii) Loss = 30000
Page # 23 Question No. 1
23.
Te United States Dollar is selling in India at ` 45.50. I the interest rate or a 6-month borrowing in India is 8% per annum and the corresponding rate in USA is 2%, (i) Do you expect United States Dollar to be at a premium or at discount in the Indian orward market; (ii) what is the expected 6-month orward rate or United States Dollar in India; and (iii) what is the rate o orward premium or discount?
Follow us on:
© 2014 Sanjay
Sara Educational Institute Pvt Ltd. | 11 Contact No. 9831092413
Sanjay Saraf Educaonal Instute Private Limited
HINTS (i) at a premium (ii) ` 46.8515 / $ (iii) 5.9341%
Page # 22 Question No. 27
24.
Te ollowing table reflect interest rate or the US $ and rench rancs. Te spot exchange rate 7.05 rancs per dollars. Complete the missing entries. 3 Months
6 Months
1 Year
11.5%
12.25%
?
19.5%
?
20%
?
?
7.5200
?
–6.3%
?
Dollar interest rate (effective rate) Franc interest rate (effective rate) Forward rate ranc per dollar Forward discount on ranc percent per year HINTS
Page # 6 Question No. 5
25.
Spot rate – $ 1.6095/POUND Interest rates (p.a. compounded continuously) i$ = 8% iPound = 3% Find 3 m orward rate. (Use e 0.025 = 1.027) HINTS F = $ 1.6297/£
12 | © 2014 Sanjay Sara Educational Institute Pvt Ltd. Contact No. 9831092413
Follow us on:
Tool Kits is time around, there is a complete revamp of our study materials or it would be better to call it tool kit. It would comprise of 1.
QUESTION BANK is is a compilation of exam representative unsolved questions classied into 3 categories
Past papers
Revision Test Papers
From our desk
is is the book that students need to carry in class everyday. 2. SELF PRACTICE BOOK -is is a compilation of solved problems which the student is expected to try and solve at his own end. It is a well known fact that students get condence only when they solve problems themselves on the basis of concepts practiced in class. is book is meant to full this lacunae. 3. CASE STUDY, SECRET SAUCE, CHEAT SHEET, THEORY AND MIND MAP - is book as the name suggests is our dierential marketing element. 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 d ecision making situations. We are therefore becoming the pioneers in CA EDUCATION providers to have introduced case studies into our preparatory tool kit.
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. We will nd that the SFM paper throws up around 20 marks of optional theory in the exam. Most of it is prepared in class and the rest is captured in this theory book. 4. MODEL TEST PAPERS : Aer 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. ALL THE BEST Sanjay Saraf
Notes