An Australian exporter has supplied goods to India and will receive 2 million Indian rupees (INR) in one year. The exporter expects that the INR will be selling at 10.34% premium against the Australian dollar (A$) in the one-year forward contract. The spot exchange rate is A$0.2980 and the exporter wants to sell INR2 million in the one-year forward contract. How much Australian dollar the exporter will make a profit after one year? (enter the whole number without sign or symbol)

 

Amount of profit in Australian dollar that the exporter will make after one year=A$61,626

Step-by-step explanation

• Foreign Currency Receivable = INR 2 Million = INR 2,000,000

• Spot exchange rate = A$ /INR = A$0.2980

• Forward Premium on INR against Australian Dollar = 10.34%

• Time period of Receipt = 1 Year

Step 1) calculation of 1 Year Forward rate = 0.2980 * 1.1034 = A$0.3288132

Step 2) Receipt of A$ after 1 year on the basis of 1 Year Forward Contract = INR 2,000,000 * A$0.3288132 = 657,626.40 =

A$ 657,626 (rounded off to Whole number)

Step 3) Calculation of Receipts on Spot rate Basis = INR 2,000,000 * A$0.2980 = A$ 596,000

Step 4) Calculation of Amount of profit in Australian dollar that the exporter will make after one year:

Receipts on the basis of Forward rate Contract - Receipts on the basis of Spot Rate

= 657,626 -596,000 = A$61,626