ABC Limited, an Indian Company has an export exposure of 10 million Yen. Yen is not directly quoted against the Rupee. The current spot rates are USD/INR = 41.79 and USD/JPY =129.75. It is estimated that Yen will depreciate to 144 level and Rupee to depreciate against Dollar to 43. The Forward rate for September 2020 USD/YEN = 137.35 and USD/INR 42.89. Given that the actual spot rate on 30 September 2020 was USD/YEN = 137.85 and USD/INR = 42.78, is the decision to take forward cover justified in hindsight?
Foreign currency transactions are continually problem to fluctuations within the exchange charge of the forex. These fluctuations may cause transaction publicity or translation publicity. Transaction publicity affects the corporation's cash flow, while translation exposure impacts the valuation of assets and liabilities. Coping with transaction exposure must be prioritized over translation exposure in view that they contain actual coins flows. Then again, translation exposure affects the occasion of the disposal of property. A translation exposure can be hedged.