On 30th June 2009 when a forward contract matured for execution you are asked by an importer customer to extend the validity of the forward sale contract for US$ 10,000 for a further period of three months.
Contracted Rate US$1 = Rs.41.87 The US Dollar quoted on 30.6.2009
Calculate the cost for your customer in respect of the extension of the forward contract. Rupee values to be rounded off to the nearest Rupee.
Margin 0.080% for Buying Rate Margin 0.25% for Selling Rate Solution
Solution
This extension of forward Contract involves following steps
- Cancel the contract at TT buying rate.
- Rebook the contract for three months at the current rate of exchange.
Accordingly
Step 1: Cancel the contract at TT buying rate on 30.6.2009
Rs.
Spot US$ 1 40.4800
Less:Margin 0.080% 0.0324
40.4476
Hence TT buying rate Rs. 40.45 (Rounded off)
US$ 10,000 @ Rs. 40.45 Rs. 4,04,500/-
US$ 10,000@ Rs. 41.87 Rs. 4,18,700/-
Difference in favour of the bank Rs. 14,200/-.
Step 2: New contract to be booked at the appropriate forward rate. Three months forward rate is as under:
US$ 1 Rs. 40.4900 Spot Selling
Add : September Premium Rs. 0.3750
Rs. 40.8650
Add: Margin (0.25%) Rs. 0.1022
Rs. 40.9672
Forward rate to be quoted to the customer is US$ 1 = Rs.40.97
Thus cost to customer Rs.14,200/-.
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