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Blue Ltd. is engaged in the production of synthetic yarn and planning to expand its operations.

Blue Ltd. is engaged in the production of synthetic yarn and planning to expand its operations. In this context, the company is planning to import a multi-purpose machine from Japan at a cost of Yen 2,460 lakh. The company is in a position to borrow funds to finance import at 12% interest per annum with quarterly interest. India based Tokyo branch has also offered to extend credit of 90 days at 2% per annum against opening of an irrevocable letter of credit. Other information are as under

Present exchange rate: Rs.100 = Yen 246.
90 days forward rate Rs.100 = Yen 250.

Commission charges for letter of credit at 4% per 12 months.

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

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