An Australian exporter has supplied goods to India and will receive 3 million Indian rupees (INR) in one year. The exporter expects that the INR will be selling at 14.42% premium against the Australian dollar (A$) in the one-year forward contract. The spot exchange rate is A$0.2988 and the exporter wants to sell INR3 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)

 

The exporter will make a profit of 129261 Australian dollar over 1 year.

Step-by-step explanation

Spot rate 1 INR =A$0.2988 

Forward rate of INR is at premium of 14.42%

year = 1

Forward rate formula of currency =spot rate*(1+premium%*year))

forward rate of INR =0.2988*(1+14.42%)

=0.34188696

Exporter will receive INR 3000000 in 1 year

Today value of receivables at spot rate = value of INR / A$ per INR (spot rate)

=3000000*0.2988

=A$896400

1 year receivable at forward rate =3000000*0.34188696

=1025660.88

Exporter profit from forward contract = Value realized after 1 year - actual value of receivable at spot rate

=1025660.88-896400

=129260.88 A$

So The exporter will make a profit of 129261 Australian dollar over 1 year.