LMN Ltd. is an export oriented business house based in Mumbai. The Company invoices in customer’s currency. The receipt of US $ 6,00,000 is due on 1st September, 2016.
On 1st September, 2016, the spot rate US $/Rs.is 0.01461 and currency futures rate is US $/ Rs.0.01462.
It may be assumed that variation in Margin would be settled on the maturity of the futures contract.
Which of the following methods would be most advantageous for LMN Ltd.:
- using Forward Contract,
- using Currency Futures; and
- not hedging Currency Risks
Show the calculations and comment.
