P&G India. Proctor and Gamble\'s affiliate in India, P&G India, procures much of

Question

P&G India.  Proctor and Gamble's affiliate in India, P&G India, procures much of its toiletries product line from a Japanese company. Because of the shortage of working capital in India, payment terms by Indian importers are typically 180 days or longer. P&G India wishes to hedge an 8.5 million Japanese yen payable. Although options are not available on the Indian rupee (Rs), forward rates are available against the yen. Additionally, a common practice in India is for companies like P&G India to work with a currency agent who will, in this case, lock in the current spot exchange rate and interest rate data, recommend a hedging strategy.

Explanation / Answer

P&G India wishes to hedge an 8.5 million Japanese yen payable.

P&G India Can use money market Strategy to Hedge its Currency exposure by which it has to borrow equivalant rupee in india at borrowing. rate, bring the rupee in yen at spot rate and deposit in Bank a/c with Japan at deposit rate for 180 days. At due date deposit amount with interest will be equal to 8.50 million yen and bank will paid to supplier.

Net Outflow= Payment to Indian Bank with Interest

Alternatively it can use Forward contract to Buy 180 Million Yen at 180 days.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.