Q50012 Your forex dealer had entered into a cross currency deal

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

21 7 Capture 7

What will be the gain or loss in the transaction?

Solution

  1. 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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