Reference no: EM132959237
You are the CEO of a garment manufacturer "IN & co". London based retail chain M&S is looking to buy 100,000 shirts of a particular label that your factory in Surat can produce.
Your competition is a company in Bangladesh (BD &co) and a company in Vietnam (VN & Co). Because of your superior processes, you have a cost advantage over your competition.
You estimate that the spot cost of producing 100,000 shirts is as follows:
For IN &co: Indian Rupee (INR) 20,000,000 (your cost)
For BD &co: Bangladeshi Taka (BDT) 24,000,000
For VN &co: Vietnamese Dong (VND) 7,000,000,000
You observe the FX spot markets, and the following rates are available:
USDINR 74.12/74.13
USDBDT 84.75/85
USDVND 23,000/23,100
GBPUSD 1.3865/1.3870
The client M&S now asks for delivery and payment to be done 1-year ahead. Including the cost of borrowing and your profit margin, you intend to charge INR 25,000,000 for this order 1-year ahead. You observe the 1-year forward premia points are as under:
USDINR 1-year forward premia 3.27/3.30 (in Rupee terms)
GBPUSD 1-year forward premia 0.0009/0.0010 (in USD terms)
Problem 1: From the above, what is the two-way quote for GBPINR 1-year forward outright?
Problem 2: What is the 1-year ahead USD billing that you should quote?
Problem 3: What is the 1-year ahead GBP billing that you should quote?
Problem 4: Assume that 1-year USD LIBOR is 0.25% annual, actual/360. What is the implied interest rate for 1-year GBP, annual actual/360 (use mid-forward rates)?
Problem 5: What is the implied 1-year INR MIFOR, ann. act/365 (use mid-forward rates)?
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