He is expecting $ 1 million payment in the next 180 days and $ 2 million more in 270 days.
Mr. Lamb is confident about receiving the first lot of $1 million on time, while the chances of
receiving the next $2 million is 50-50. Mr. Lamb started analysing his income statement in
Britain and also in India. The Accounts department will consolidate the two and present it
in pounds. The statement for India and UK are given below :
India
(Rs.)
UK
(£)
Sales 27,200 500
Cost of goods sold and Operating Expenses 13,600 350
PBIT 13,600 150
Interest 6,800 232
Profit before Tax 6,800 -82
The Rupee Pound rate is volatile and fluctuates between Rs. 80 and Rs. 85 per Pound.
1. Work out interest rate arbitrage if East India Company borrows 1 million Euros and
coverts them to Pound to invest in Britain.
2. Which hedging tools do you suggest for each of the expected dollar payments.
3. Consolidate India and Britain income statements if exchange rate is Rs. 80 per Pound.
4. Consolidate the two income statements if the exchange rate is Rs. 85 per Pound.
5. State the type of exposure in above case.
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He is expecting $ 1 million payment in the next 180 days and $ 2 million more in 270 days.
Mr. Lamb is confident about receiving the first lot of $1 million on time, while the chances of
receiving the next $2 million is 50-50. Mr. Lamb started analysing his income statement in
Britain and also in India. The Accounts department will consolidate the two and present it
in pounds. The statement for India and UK are given below :
India
(Rs.)
UK
(£)
Sales 27,200 500
Cost of goods sold and Operating Expenses 13,600 350
PBIT 13,600 150
Interest 6,800 232
Profit before Tax 6,800 -82
The Rupee Pound rate is volatile and fluctuates between Rs. 80 and Rs. 85 per Pound.
1. Work out interest rate arbitrage if East India Company borrows 1 million Euros and
coverts them to Pound to invest in Britain.
2. Which hedging tools do you suggest for each of the expected dollar payments.
3. Consolidate India and Britain income statements if exchange rate is Rs. 80 per Pound.
4. Consolidate the two income statements if the exchange rate is Rs. 85 per Pound.
5. State the type of exposure in above case.
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