A person has invested INR 100,000 in an Indian corporate bond for a year giving a return of 16% in one year. The person plans to use the proceeds from the maturity of corporate bond to fund his son's education on US. At the time of investing in the corporate bond, USDINR spot rate was 50 and one year premium was 4%. The person decides to hedge currency risk using USDINR one year futures. At the end of one year, how many USD can this person remit to his son?

      A person has invested INR 100,000 in an Indian corporate bond for a year giving a return of 16% in one year. The person plans to use the proceeds from the maturity of corporate bond to fund his son's education on US. At the time of investing in the corporate bond, USDINR spot rate was 50 and one year premium was 4%. The person decides to hedge currency risk using USDINR one year futures. At the end of one year, how many USD can this person remit to his son?

       a) 2320  

       b) 2417  

       c) 2083  

       d) 2231  

 Explanation

 Investment INR 100,000, Return 16% : 100,000*16/100= 16000

 Value after one year 100,000+16000= INR  116000

 USDINR at that time was 50, Return 4%: 50*4/100= 2

 USDINR after one year 52

 Actual hedge  116000/52= 2230.76 (Nearest value 2231)