Strategic financial management

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Deep Krishna (Querist)

22 July 2013 I am CA Finalist student preparing for my coming exam and I am referring to SD Bala and Makkar sir notes. However there are not all questions answered in makkar sir notes. I searched for the answer in suggested and other books available. It would be very kind if you would help me. I have also written my answer but I don't think it is correct.
Question no. 71 Page G19 of Makkar An Indian Company obtains the following quotes ( Rs. / $) Spot 35.90 / 36.10 3 month forward 36.00 / 36.25 6 month forward 36.10 / 36.40 3 months interest rates - Rs - 12 % / $ - 6 % 6 months interest rates - Rs. 11.5 % . $ - 5.5 % Determine what should be 3-months interest rates after 3 months to make the compant indifferent between three-month borrowing and six-month borrowing in the case of (a) Rupee Borrowing (b) Dollor Borrowing
Answer:
Forward rate of 3 months - 36.10 x (1+0.12x3/12) / ( 1 + 0.06 x 3/12 ) = 36.64 To be indifferent , forward rate of 3 months and 6 months should be equal so 36.64 = 36.10 x (1 + Rs. interest rate /2 ) / (1 + 0.055 /2 ) Therefore, Rs. interest rate = 8.63 %

Deep Krishna

Deep Krishna (Querist)

29 September 2013 Answer was found in books of Makkar new ( printed version )
(1+.12/4)(1+i/4) = (1 + 0.115/2)
i = 10.68 %

Similarly for $,
(1+.055/2) = ( 1 + 0.06/4) ( 1+i/4)
i = 4.93 %

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