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Case Studies
  • 
	Scenario 1

	An SME gets an order of $500000 when the spot was 46.00 and he is expecting a payment of the same in 3 months. In order to avoid currency risk, the MD of the company immediately books 100% of the position in the forwards market with premium of 50 paise netting him 46.50.

	Due to unforeseen circumstances the payment is expected to be delayed by at least a month and the rupee quote went from 46.00 to 52.00 levels. Because of the same the corporate had to book a loss of 5.50 rupees per dollar.

	Why covering 100% on a transaction  is not always a wise thing to do?

	 

	Source: India Forex

    Scenario 1 An SME gets an order of $500000 when the spot was 46.00 and he is expecting a payment of the same in 3 months. In order to avoid currency risk, the MD of the company immediately books 100% of the position in the forwards market with premium of 50 paise netting him 46.50. Due to unforeseen circumstances the payment is expected to be delayed by at least a month and the rupee quote went from 46.00 to 52.00 levels. Because of the same the corporate had to book a loss of 5.50 rupees per dollar. Why covering 100% on a transaction  is not always a wise thing to do?   Source: India Forex

  • 
	Scenario 2

	A corporate sells $2 Mio in the long forward range of 8 months when the spot was 46 with the expectation that Rupee is likely to appreciate now. But when the spot hits 48.00 the corporate sells $2 Mio over and above his order, to minimize the MTM loss and to average it out. But now the spot is 53.00 and the corporate is now less on his limits plus the banks are now asking for more security.

	Why averaging out is not always a good idea?

	 

	Source: India Forex

    Scenario 2 A corporate sells $2 Mio in the long forward range of 8 months when the spot was 46 with the expectation that Rupee is likely to appreciate now. But when the spot hits 48.00 the corporate sells $2 Mio over and above his order, to minimize the MTM loss and to average it out. But now the spot is 53.00 and the corporate is now less on his limits plus the banks are now asking for more security. Why averaging out is not always a good idea?   Source: India Forex

  • 
	Scenario 3

	An importer avails Buyer’s Credit of $1 Mio for 3 months when the spot was 46.50 with the expectation that when the rupee will appreciate by Re.1, they will hedge their position. But the rupee moved in the opposite direction to 50 plus levels.

	Why not having a risk management policy is a deflator to the P/L account.

	 

	Source: India Forex

    Scenario 3 An importer avails Buyer’s Credit of $1 Mio for 3 months when the spot was 46.50 with the expectation that when the rupee will appreciate by Re.1, they will hedge their position. But the rupee moved in the opposite direction to 50 plus levels. Why not having a risk management policy is a deflator to the P/L account.   Source: India Forex

  • 
	Scenario 4

	A company having Imports as well as Exports of $ 20 Mio, from which Exports are $ 12 Mio while the rest are Imports. When the rupee started depreciating from 45 to 48 - 49 levels his booked exports are now in MTM losses. And since the company is not comfortable paying premium for covering Imports their Import exposures are also in loss.

	In case of both Imports and Exports why hedging only export, not import is always be an ideal strategy.

	 

	Source: India Forex

    Scenario 4 A company having Imports as well as Exports of $ 20 Mio, from which Exports are $ 12 Mio while the rest are Imports. When the rupee started depreciating from 45 to 48 - 49 levels his booked exports are now in MTM losses. And since the company is not comfortable paying premium for covering Imports their Import exposures are also in loss. In case of both Imports and Exports why hedging only export, not import is always be an ideal strategy.   Source: India Forex

  • 
	Scenario 5

	A corporate having Export business, selling at 90days credit to his buyer and production of goods takes another 90 days. Therefore, he receives final remittance 180 days after confirmation of order.

	What structured export finance products can one avail from banks in order to reduce interest cost and foreign currency fluctuation?  

	 

	Source: India Forex 

	 

	 

	 

	 

    Scenario 5 A corporate having Export business, selling at 90days credit to his buyer and production of goods takes another 90 days. Therefore, he receives final remittance 180 days after confirmation of order. What structured export finance products can one avail from banks in order to reduce interest cost and foreign currency fluctuation?     Source: India Forex        

  • 
	Scenario 1

	An SME gets an order of $500000 when the spot was 46.00 and he is expecting a payment of the same in 3 months. In order to avoid currency risk, the MD of the company immediately books 100% of the position in the forwards market with premium of 50 paise netting him 46.50.

	Due to unforeseen circumstances the payment is expected to be delayed by at least a month and the rupee quote went from 46.00 to 52.00 levels. Because of the same the corporate had to book a loss of 5.50 rupees per dollar.

	Why covering 100% on a transaction  is not always a wise thing to do?

	 

	Source: India Forex
  • 
	Scenario 2

	A corporate sells $2 Mio in the long forward range of 8 months when the spot was 46 with the expectation that Rupee is likely to appreciate now. But when the spot hits 48.00 the corporate sells $2 Mio over and above his order, to minimize the MTM loss and to average it out. But now the spot is 53.00 and the corporate is now less on his limits plus the banks are now asking for more security.

	Why averaging out is not always a good idea?

	 

	Source: India Forex
  • 
	Scenario 3

	An importer avails Buyer’s Credit of $1 Mio for 3 months when the spot was 46.50 with the expectation that when the rupee will appreciate by Re.1, they will hedge their position. But the rupee moved in the opposite direction to 50 plus levels.

	Why not having a risk management policy is a deflator to the P/L account.

	 

	Source: India Forex
  • 
	Scenario 4

	A company having Imports as well as Exports of $ 20 Mio, from which Exports are $ 12 Mio while the rest are Imports. When the rupee started depreciating from 45 to 48 - 49 levels his booked exports are now in MTM losses. And since the company is not comfortable paying premium for covering Imports their Import exposures are also in loss.

	In case of both Imports and Exports why hedging only export, not import is always be an ideal strategy.

	 

	Source: India Forex
  • 
	Scenario 5

	A corporate having Export business, selling at 90days credit to his buyer and production of goods takes another 90 days. Therefore, he receives final remittance 180 days after confirmation of order.

	What structured export finance products can one avail from banks in order to reduce interest cost and foreign currency fluctuation?  

	 

	Source: India Forex 

	 

	 

	 

	 

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