XYZ Ltd. It is planning to import a multi-purpose machine from Japan at a cost of...

XYZ Ltd. It is planning to import a multi-purpose machine from Japan at a cost of 3400 lakhs yen. The company can avail loan at 18% interest per annum compounded quarterly with which it can import the machine. However, there is an offer from the Tokyo branch of an India based bank extending credit of 180 days at 2% per annum against the opening of an irrevocable letter of credit. Other information: -

Present exchange rate Rs. 100 = 340 yen

180 days forward rate Rs. 100 = 345 yen

Commission charges for a letter of credit at 2% per 12 months.

Advise whether the offer from the foreign branch should be accepted?

The answer should be a min of 700 words with complete theory and calculation part

Expert Solution

jeff jeffy answered 1 year ago

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