Your forex dealer had entered into a cross currency deal and had sold US $ 10,00,000 against EURO at US $ 1 = EUR 1.4400 for 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 INR 31.4300/4500
What will be the gain or loss in the transaction?
Solution
- The amount of EUR bought by selling
USD 10,00,000 * 1.4400 = EUR 14,40,000
2. The amount of EUR sold for buying
USD 10,00,000 * 1.4450 = EUR 14,45,000
3. Net Loss in the Transaction = EUR 5,000 To acquire EUR 5,000 from the market @
(a) USD 1 = EUR 1.4400 &
(b) USD1 = INR 31.4500
Cross Currency buying rate of EUR/INR is Rs.31.4500 / 1.440 i.e. Rs.21.8403
Loss in the Transaction Rs.21.8403 * 5000 = Rs.1,09,201.50
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