https://

www.nseindia.com/

Dr. Narander Kumar Nigam

Introduction to Currency Markets
 The current currency rate mechanism has evolved over
thousands of years.
◦ Initially, the trading of goods and services was by barter system where in
goods were exchanged for each other.

◦ Gradually metals became more prominent medium of exchange

 Because of their ease of transportation, divisibility, certainty of quality and universal
acceptance.
 Amongst metals, gold and silver coins were most prominent and finally gold coins became
the standard means of exchange
Introduction to Currency Markets
 Due to international trade – an evolution of foreign exchange
(FX)
◦ i.e., the value of one currency of one country versus the value
of the currency of another country.
 The value of each currency against another currency was derived from the
gold exchange rate.

◦ For example, if one unit of gold is valued at Indian Rupees (INR) 10,000
and US dollars (USD) 500 then the exchange rate of INR versus USD would
be 1 USD = INR 20.
Currency pairs in India
 US Dollar = USDINR, USD/INR,
 Euro = EURINR, EUR/INR,
 Japanese Yen = JPYINR, JPY/INR,
 British Pound = GBPINR, GBP/INR,
 Swiss Franc = CHFINR, CHF/INR,
Currency pairs in India
 Currency pair = Base Currency (BC) / Quotation Currency(QC)

QC
BC BC
USDINR, USD/INR,
QC QC
BC
 The BC is the currency that is priced and its amount is fixed at
one unit.
◦ The other currency is the QC, which prices the BC, and its
amount varies as the price of BC varies in the market
Currency pairs - Trade
Buy USDINR is Buy BC and sell QC; Buy USD
and sell INR
Sell USDINR is Sell BC and buy QC; sell USD
and buy INR
Appreciation / Depreciation
 USDINR has moved from 44.00 to 44.25, the USD has appreciated and the
INR has depreciated.

◦ USD looks strong over next few months would mean that USDINR pair
may move towards 45.00 from the current levels of 44.00
 USDINR has moved from 44.00 to 43.25, the USD has depreciated and the
INR has appreciated.

◦ USD looks week over next few months would mean that USDINR pair may
move towards 44.00 from the current levels of 45.00
Exchange Derivatives
 Derivative is a product whose value is derived from the value of one or more
underlying asset.

◦ The underlying asset can be equity, foreign exchange, commodity or

any other asset.
 A futures contract is a standardized contract, traded on an exchange, to buy
or sell a certain underlying asset at a certain date in the future, at a
specified price.

◦ When the underlying is an exchange rate, the contract is termed a

“currency futures contract”.
Futures Terminology
 Spot price: The price at which the underlying asset trades in the spot
market.
 Futures price: The current price of the specified futures contract
 Contract cycle: The period over which a contract trades. The currency
futures contracts on the SEBI recognized exchanges have one-month, two-
month, and three-month up to twelve-month expiry cycles. Hence, these
exchanges will have 12 contracts outstanding at any given point in time.
 Expiry date: Also called Last Trading Day, it is the day on which trading
ceases in the contract; and is two working days prior to the final settlement
date.
Futures Terminology
 Contract size: The amount of asset that has to be delivered under one
contract. Also called as lot size. In the case of USDINR it is USD 1000;
EURINR it is EUR 1000; GBPINR it is GBP 1000 and in case of JPYINR it is JPY
100,000.
 Initial margin: The amount that must be deposited in the margin account at
the time a futures contract is first entered into is known as initial margin.
 Marking-to-market: In the futures market, at the end of each trading day,
the margin account is adjusted to reflect the investor's gain or loss
depending upon the futures closing price. This is called marking-to-market
Interest rate parity and pricing of currency
futures
 Let us assume that risk free interest rate for one year deposit in India is 7%
and in USA it is 3%.

◦ You as a smart trader/ investor will raise money from the USA and deploy
it in India and try to capture the arbitrage of 4%.

◦ You could continue to do so and make this transaction a non-ending

money-making machine.

◦ Life is not that simple! And such arbitrages do not exist for very long.
Interest rate parity and pricing of currency
futures
Two important things to think about before we proceed:

◦ The loan taken in the USA was in USD and you want INR. Therefore you
need to convert USD into INR. So you will buy INR and sell USD; this
means USDINR sells in the spot market because you want on-the-spot
conversion.

◦ Money invested in India will generate income (interest income) and at T1

you will sell INR and buy USD; this means USDINR buy in the future
market because you want to transfer money to the USA to pay loan
payment.
 In Short: - USDINR in SPOT + USDINR in future
 This will push SPOT downward and futures upward.
Valuation of currency futures
F=S* = S+ (S * (RQC-RBC) * N
F = Futures price

S = Spot price

RBC = interest rate on base currency

RQC = interest rate on quoting currency

N = forward period in years

Valuation of currency futures
Suppose 6 monthly interest rate in India is 5% (or 10% per annum) and in
USA are 1% (2% per annum). The current USDINR spot rate is 50. What is the
likely 6 month USDINR futures price?

F=S* = S+ (S * (RQC-RBC) * N (approx.)

F = 50 *
Concept of premium and discount
If the one-year future price of the USDINR pair is 75 when the spot price is 70.

◦ It means that INR is at discount to USD and USD is at a premium to INR.

Intuitively to understand why INR is called a discount to USD, think that to buy
the same 1 USD you had to pay INR 70 and you have to pay 75 after one year

◦ i.e., you have to pay more INR to buy the same 1 USD. And therefore the
future value of INR is at discount to USD.

Therefore in any currency pair, the future value of a currency with a high-
interest rate is at a discount (in relation to spot price) to the currency with a
low-interest rate.
Hedging With Currency Forward

Post
Early Maturity
Maturity

Delivery Delivery Delivery

Cancelation Cancelation Cancelation

Extension Extension Extension

Hedging With Currency Forward

Post
Early Maturity
Maturity

Delivery Delivery Delivery

Cancelation Cancelation Cancelation

Extension Extension Extension

Early Delivery-Short Hedge

Q1. On 1st Jan 2022, Mr. Ram an exporter enters into a forward contract with SBI bank to sell 100,000 USD on
31st March 2022 @ 75.40. However, Mr. Ram received the amount before the date i.e., 26th Feb 2022. Hence,
Mr. Ram requested the bank to take delivery before the due date i.e., 28 th Feb 2022.

Inter Bank rate on 26th Feb 2022 was as follows:

Spot: 75.22 – 75.27

One-month premium 15/20 i.e., 75.37 – 75.47

Calculate the net cash Inflow of Mr. Ram assuming an Interest rate of 12%.
Early Delivery-Short Hedge
Sol: Transection on 1st Jan 2022,

Customer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Early Delivery-Short Hedge
Sol: Transection on 1st Jan 2022,

Customer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Sol: Transection on 28th Feb 2022,

Customer: Rec Payment @ 75.40

Bank: Sell Spot @ 75.22

Inter-bank market: Buy Forward @ 75.47

Early Delivery-Short Hedge
Sol: Transection on 1st Jan 2022,

Customer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Sol: Transection on 28th Feb 2022,

Customer: Rec Payment @ 75.40

Bank: Sell Spot @ 75.22

Inter-bank market: Buy Forward @ 75.47

Net Amount Rec: 75.4*1,00,000 = 75,40,000

Less: Swap loss: (75.22-75.47) *1,00,000 = 25,000

Less Int Loss: 18000@12% for 1 Month = 180

Total: 75,14, 820

Early Delivery-Long Hedge
Q2. On 1st Jan 2022, Mr. Ram an Importer enters into a forward contract with SBI bank to buy 100,000 USD
on 31st March 2022 @ 75.40. However, Mr. Ram has to pay before the date i.e., 26 th Feb 2022. Hence, Mr.
Ram requested the bank to take delivery before the due date i.e., 28 th Feb 2022.

Inter Bank rate on 26th Feb 2022 was as follows:

Spot: 75.22 – 75.27

One-month premium 15/20 i.e., 75.37 – 75.47

Calculate the net cash outflow of Mr. Ram assuming an Interest rate of 12%.
Early Delivery-Long Hedge
Sol: Transection on 1st Jan 2022,

Customer: Buy Forward @ 75.40

Bank: sell Forward @ 75.40

Inter-bank market: buy Forward @ 75.40+Profit

Early Delivery-Long Hedge
Sol: Transection on 1st Jan 2022,

Customer: Buy Forward @ 75.40

Bank: sell Forward @ 75.40

Inter-bank market: buy Forward @ 75.40+Profit

Transaction on 28th Feb 2022,

Customer: Pay Payment @ 75.40

Bank: Buy Spot @ 75.27

Inter-bank market: sell Forward @ 75.37

Early Delivery-Long Hedge
Sol: Transection on 1st Jan 2022,

Customer: Buy Forward @ 75.40

Bank: sell Forward @ 75.40

Inter-bank market: buy Forward @ 75.40+Profit

Transaction on 28th Feb 2022,

Customer: Pay Payment @ 75.40

Bank: Buy Spot @ 75.27

Inter-bank market: sell Forward @ 75.37

Net Amount Pay: 75.4*1,00,000 = 75,40,000

Less: Swap pft: (75.37-75.27) *1,00,000 = 10,000

Less Int gain: 13000@12% for 1 Month = 130

Total: 75,29, 870

Maturity Cancelation-Short Hedge

Q3. On 1st Jan 2022, Mr. Ram an exporter enters into a forward contract with SBI bank to sell 100,000 USD on
31st March 2022 @ 75.40. However, Mr. Ram did not receive the said amount on the maturity date. Hence,
Mr. Ram requested the bank to cancel the contract on the maturity date.

Inter Bank rate on 31st March 2022 was as follows:

Spot: 75.22 – 75.27

One-month premium 15/20 i.e., 75.37 – 75.47

Additional Information

Interest rate @ 12%.

The bank charge 10p on each trade

Calculate the net cash Inflow/Outflow of Mr. Ram

Maturity Cancelation-Short Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Maturity Cancelation-Short Hedge
Sol: Transection on 1st Jan 2022,

Customer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Transaction on 31st March 2022.

Customer: Buy spot @ 75.37

Bank: sell Spot @ 75.37

Inter-bank market: Deliver IBM

Maturity Cancelation-Short Hedge
Sol: Transection on 1st Jan 2022,

Customer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Transaction on 31st March 2022.

Customer: Buy spot @ 75.37

Bank: sell Spot @ 75.37

Inter-bank market: Deliver IBM

Sol:

Amount received in original contract 75,40,000

Amount paid for Spot Trade 75,37,000

Total 3,000
Maturity Cancelation-Long Hedge
Q4. On 1st Jan 2022, Mr. Ram an Importer enters into a forward contract with SBI bank to buy 100,000 USD
on 31st March 2022 @ 75.40. However, Mr. Ram did not receive the goods. Hence, requested the bank to
cancel the contract on the maturity date.

Inter Bank rate on 31st March 2022 was as follows:

Spot: 75.22 – 75.27

One-month premium 15/20 i.e., 75.37 – 75.47

Additional Information

Interest rate @ 12%.

Bank charge 0.5% on each trade

Calculate the net cash Inflow/Outflow of Mr. Ram

Maturity Cancelation-Long Hedge
Sol: Transection on 1st Jan 2022,
Costumer: Buy Forward @ 75.40
Bank: Sell Forward @ 75.40
Inter-bank market: Buy Forward @ 75.40+Profit
Maturity Cancelation-Long Hedge
Sol: Transection on 1st Jan 2022,
Costumer: Buy Forward @ 75.40
Bank: Sell Forward @ 75.40
Inter-bank market: Buy Forward @ 75.40+Profit
Transection on 31st March 2022.
Costumer: Sell spot @ 75.22 – 75.22*0.005 = 75.22-0.3761= 74.8439
Bank: Buy Spot @ 74.8439
Inter-bank market: Take Delivery IBM
Maturity Cancelation-Long Hedge
Sol: Transection on 1st Jan 2022,
Customer: Buy Forward @ 75.40
Bank: Sell Forward @ 75.40
Inter-bank market: Buy Forward @ 75.40+Profit
Transaction on 31st March 2022.
Customer: Sell spot @ 75.22 – 75.22*0.005 = 75.22-0.3761= 74.8439
Bank: Buy Spot @ 74.8439
Inter-bank market: Take Delivery IBM
Sol:
Amount Paid in original contract 75,40,000
Amount rec for Spot Trade 74,84,390
Total loss (55,610)
Early Cancelation-Short Hedge
Q5. On 1st Jan 2022, Mr. Ram an exporter enters into a forward contract with SBI bank to sell 100,000 USD on
31st March 2022 @ 75.40. Further, Mr. Ram received information about the cancelation of the original deal
from the counterparty on the date i.e., 26th Feb 2022. Therefore, Mr. Ram requested the bank to cancel
forward before the due date i.e., 28th Feb 2022.

Inter Bank rate on 26th Feb 2022 was as follows:

Spot: 75.22 – 75.27
One-month premium 15/20 i.e., 75.37 – 75.47

Additional Information
Interest rate @ 12%.
The bank charge 10p on each trade
Calculate the net cash Inflow/Outflow of Mr. Ram
Early Cancelation-Short Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Early Cancelation-Short Hedge
Sol: Transection on 1st Jan 2022,

Customer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Sol: Transection on 28th Feb 2022,

Customer: Buy 1 month Forward @ 75.57

Bank: Sell 1 month Forward @ 75.57

Inter-bank market: Buy 1 month Forward @ 75.47

Early Cancelation-Short Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Sol: Transection on 28th Feb 2022,

Costumer: Buy 1 month Forward @ 75.57

Bank: Sell 1 month Forward @ 75.57

Inter-bank market: Buy 1 month Forward @ 75.47

Net Amount Rec: 75.40 - 75.57*1,00,000 = (17,000)

Early Cancelation-Long Hedge
Q6. On 1st Jan 2022, Mr. Ram an Importer enters into a forward contract with SBI bank to buy 100,000 USD
on 31st March 2022 @ 75.40. Further, Mr. Ram received information about the cancelation of the original
deal from the counterparty on the date i.e., 26th Feb 2022. Therefore, Mr. Ram requested the bank to cancel
forward before the due date i.e., 28th Feb 2022.

Inter Bank rate on 26th Feb 2022 was as follows:

Spot: 75.22 – 75.27

One-month premium 15/20 i.e., 75.37 – 75.47

Additional Information

Interest rate @ 12%.

The bank charge 10p on each trade

Calculate the net cash Inflow/Outflow of Mr. Ram

Early Cancelation-Long Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Buy Forward @ 75.40

Bank: Sell Forward @ 75.40

Inter-bank market: Buy Forward @ 75.40+Profit

Early Cancelation-Long Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Buy Forward @ 75.40

Bank: Sell Forward @ 75.40

Inter-bank market: Buy Forward @ 75.40+Profit

Sol: Transection on 28th Feb 2022,

Costumer: Sell 1 month Forward @ 75.27

Bank: Buy 1 month Forward @ 75.27

Inter-bank market: Sell Forward @ 75.37

Early Cancelation-Long Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Buy Forward @ 75.40

Bank: Sell Forward @ 75.40

Inter-bank market: Buy Forward @ 75.40+Profit

Sol: Transection on 28th Feb 2022,

Costumer: Sell 1 month Forward @ 75.27

Bank: Buy 1 month Forward @ 75.27

Inter-bank market: Sell Forward @ 75.37

Net Amount Pay: 75.27 - 75.40*1,00,000 = (13,000)

Maturity Extension -Short Hedge
Q7. On 1st Jan 2022, Mr. Ram an exporter enters into a forward contract with SBI bank to sell 100,000 USD on
31st March 2022 @ 75.40. However, the counterparty of Mr. Ram informed us of a delay of 1 Month on the
maturity date. Hence, Mr. Ram requested a bank 1-month extension on the maturity date.

Inter Bank rate on 31st March 2022 was as follows:

Spot: 75.22 – 75.27

One-month premium 15/20 i.e., 75.37 – 75.47

Additional Information

Interest rate @ 12%.

The bank charge 10p on each trade

Calculate the net cash Inflow/Outflow of Mr. Ram

Maturity Extension -Short Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Maturity Extension -Short Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Transection on 31st March 2022.

Costumer: Buy spot @ 75.37

Bank: sell Spot @ 75.37

Inter-bank market: Deliver IBM

Costumer: Sell 1 month Forward @ 75.27

Bank: Buy 1 month Forward @ 75.27

Inter-bank market: Sell 1 month Forward @ 75.37

Maturity Extension -Short Hedge
Sol: Transection on 1st Jan 2022,

Customer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Transaction on 31st March 2022.

Customer: Buy spot @ 75.37

Bank: sell Spot @ 75.37

Inter-bank market: Deliver IBM

Customer: Sell 1 month Forward @ 75.27

Bank: Buy 1 month Forward @ 75.27

Inter-bank market: Sell 1 month Forward @ 75.37

Swap Loss (75.37 – 75.27) *1,00,000 = (10,000)

Interest gains (75.40-75.37) *1,00,000 = 3000 * 0.12 * 1/12 = 30

Total (9,970)
Maturity Extension -Long Hedge
Q8. On 1st Jan 2022, Mr. Ram an Importer enters into a forward contract with SBI bank to buy 100,000 USD
on 31st March 2022 @ 75.40. However, the counterparty of Mr. Ram informed us of a delay of 1 Month on
the maturity date. Hence, Mr. Ram requested a bank 1-month extension on the maturity date.

Inter Bank rate on 31st March 2022 was as follows:

Spot: 75.22 – 75.27

One-month premium 15/20 i.e., 75.37 – 75.47

Additional Information

Interest rate @ 12%.

Bank charge 0.5% on each trade

Calculate the net cash Inflow/Outflow of Mr. Ram

Maturity Extension -Long Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Buy Forward @ 75.40

Bank: Sell Forward @ 75.40

Inter-bank market: Buy Forward @ 75.40+Profit

Maturity Extension -Long Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Buy Forward @ 75.40

Bank: Sell Forward @ 75.40

Inter-bank market: Buy Forward @ 75.40+Profit

Transection on 31st March 2022.

Costumer: Sell spot @ 75.22 – 75.22*0.005 = 75.22-0.3761= 74.8439

Bank: Buy Spot @ 74.8439

Inter-bank market: Take Delivery IBM

Costumer: Buy 1 month Forward @ 75.84735 (75.47+0.005*75.47)

Bank: sell 1 month Forward @ 75.84735

Inter-bank market: Buy 1 month Forward @ 75.47

Maturity Extension -Long Hedge
Sol: Transection on 1st Jan 2022,

Customer: Buy Forward @ 75.40

Bank: Sell Forward @ 75.40

Inter-bank market: Buy Forward @ 75.40+Profit

Transaction on 31st March 2022.

Costumer: Sell spot @ 75.22 – 75.22*0.005 = 75.22-0.3761= 74.8439

Bank: Buy Spot @ 74.8439

Inter-bank market: Take Delivery IBM

Customer: Buy 1 month Forward @ 75.84735 (75.47+0.005*75.47)

Bank: sell 1 month Forward @ 75.84735

Inter-bank market: Buy 1 month Forward @ 75.47

Swap Loss (74.8439 – 75.84735) *1,00,000 = (1,00,345)

Interest Charges (74.8439-75.40) *1,00,000 = 55,610 * 0.12 * 1/12 = 556.1

Total (1,00,901.1)
Early Extension -Short Hedge
Q9. On 1st Jan 2022, Mr. Ram an exporter enters into a forward contract with SBI bank to sell 100,000 USD on
31st March 2022 @ 75.40. However, the counterparty of Mr. Ram informed a delay of 2 Months on the date
i.e., 26th Feb 2022. Hence, Mr. Ram requested a bank 2-month extension on from 28 th Feb 2022.

Inter Bank rate on 26th Feb 2022 was as follows:

Spot: 75.22 – 75.27

One-month premium 15/20 i.e., 75.37 – 75.47

Two-month premium 35/40 i.e., 75.57 – 75.67

Additional Information

Interest rate @ 12%.

The bank charge 10p on each trade

Calculate the net cash Inflow/Outflow of Mr. Ram

Early Extension -Short Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Early Extension -Short Hedge
Sol: Transection on 1st Jan 2022,

Customer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Transaction on 28th Feb 2022,

Customer: Buy 1 month Forward @ 75.57

Bank: Sell 1 month Forward @ 75.57

Inter-bank market: Buy 1 month Forward @ 75.47

__________________________________________________

Customer: Sell 2 months Forward @ 75.47

Bank: Buy 2 months Forward @ 75.47

Inter-bank market: Sell 2 months Forward @ 75.57

Early Extension -Short Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Sell Forward @ 75.40

Bank: Buy Forward @ 75.40

Inter-bank market: Sell Forward @ 75.40+Profit

Transection on 28th Feb 2022,

Costumer: Buy 1 month Forward @ 75.57

Bank: Sell 1 month Forward @ 75.57

Inter-bank market: Buy 1 month Forward @ 75.47

__________________________________________________

Costumer: Sell 2 month Forward @ 75.47

Bank: Buy 2 month Forward @ 75.47

Inter-bank market: Sell 2 month Forward @ 75.57

Swap Loss (75.57 – 75.47) *1,00,000 = (10,000)

Interest Charges (75.40-75.57) *1,00,000 = 17,000 * 0.12 * 1/12 = (170)

Total (10,170)
Early Extension -Long Hedge
Q10. On 1st Jan 2022, Mr. Ram an Importer enters into a forward contract with SBI bank to buy 100,000 USD
on 31st March 2022 @ 75.40. However, the counterparty of Mr. Ram informed a delay of 2 Months on the
date i.e., 26th Feb 2022. Hence, Mr. Ram requested a bank 2-month extension on from 28 th Feb 2022.

Inter Bank rate on 26th Feb 2022 was as follows:

Spot: 75.22 – 75.27

One-month premium 15/20 i.e., 75.37 – 75.47

Two-month premium 35/40 i.e., 75.57 – 75.67

Additional Information

Interest rate @ 12%.

The bank charge 10p on each trade

Calculate the net cash Inflow/Outflow of Mr. Ram

Early Extension -Long Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Buy Forward @ 75.40

Bank: Sell Forward @ 75.40

Inter-bank market: Buy Forward @ 75.40+Profit

Early Extension -Long Hedge
Sol: Transection on 1st Jan 2022,

Costumer: Buy Forward @ 75.40

Bank: Sell Forward @ 75.40

Inter-bank market: Buy Forward @ 75.40+Profit

Transection on 28th Feb 2022,

Costumer: Sell 1 month Forward @ 75.27

Bank: Buy 1 month Forward @ 75.27

Inter-bank market: Sell Forward @ 75.37

Costumer: Buy 2 month Forward @ 75.77

Bank: Sell 2 month Forward @ 75.77

Inter-bank market: Buy 2 month Forward @ 75.67

Early Extension -Long Hedge
Sol: Transection on 1st Jan 2022,

Customer: Buy Forward @ 75.40

Bank: Sell Forward @ 75.40

Inter-bank market: Buy Forward @ 75.40+Profit

Transaction on 28th Feb 2022,

Customer: Sell 1 month Forward @ 75.27

Bank: Buy 1 month Forward @ 75.27

Inter-bank market: Sell Forward @ 75.37

Customer: Buy 2 month Forward @ 75.77

Bank: Sell 2 month Forward @ 75.77

Inter-bank market: Buy 2 month Forward @ 75.67

Swap Loss (75.27 – 75.77) *1,00,000 = (50,000)

Interest Charges (75.27-75.40) *1,00,000 = 13,000 * 0.12 * 1/12 = (130)

Total (50,130)
Thank you