Mock exam currency forward question

CFA Level III Derivatives
#1

Hello all the mock exam for level 3 seems a bit wierd in my opinion. I would never guess at some of these answers. Can someone help me understand the answer to this question a bit better.

Michael Sebastian is a currency trader at Queensland Investments based in Melbourne, Australia. Queensland has a short position of 60,000,000 Indian rupees (INR) in anINR/AUD forward contract that is currently due. Sebastian reviews the position with Novak and informs him that the India assets under management grew by 5%. Sebastian
is concerned about the INR exposure but does not have a directional view on the
exchange rate movement in the INR/USD spot rate. To hedge the risk of the INR
position, Novak suggests rolling the forward contract over using a three-month currency swap and presents the data in Exhibit 2. INR/AUD forward points are scaled by 100.

Construct a three-month currency swap trade to hedge Queensland’s INR
exposure.

Answer: The India asset value has increased by 5%: INR 60,000,000 * (1 + 0.05) = INR
63,000,000
Thus, the size of the hedge should be increased from INR 60 million to INR 63 million
when rolling over the futures contract using a currency swap.
Sebastian should use a mismatched swap, buying INR 60,000,000 at the spot rate (spot
leg) against AUD to settle the maturing forward contract and then selling INR
63,000,000 at forward (forward leg) to increase the hedge size.
The forward leg of the swap would require selling INR 63,000,000 forward three
months. Selling INR (foreign currency) is equal to buying AUD (base currency) in the
INR/AUD quote.

There’s no way I would have honestly arrived at this answer. Can someone explain this a bit better?

#2

Not the best written question.

Apparently they want you to infer that Sebastian wants to maintain a 100% hedge, but that’s far from clear.

Once you get there, however, the rest follows naturally. You have to deliver INR 60 million against the expiring contract (you’re short INR), so you buy INR in the spot market. You want to continue the hedge (which was short INR), so you sell INR in the forward market.

Does that help? If not, please let me know what, exactly, vexes you.

#3

Yes thanks Bill. That does help. Essentially, you have to deliver INR so you buy it. As you said forward position needs to be continued and b/c notional increased you sell 63 million to maintain position. Thanks. Generally fx sizes and directions I find confusing. To compound my problem I just didn’t understand the wording here or what was being asked.

Just feeling anxious if this is what to be expected in the exam.