SENSEX NIFTY
Jan 12, 2011, 04.09 PM IST | Source: Moneycontrol.com

Hedging against Indian Rupee depreciation

This article has been sourced from MCX-SX. You can visit their website http://www.mcx-sx.com/ for futher information.

Hedging against Indian Rupee depreciation

This article has been sourced from MCX-SX. You can visit their website http://www.mcx-sx.com/ for futher information.

Hedging against Indian Rupee depreciation
 
An organic chemicals dealer in India placed an import order worth, say, 100,000 with a German manufacturer. The current spot rate of Euro is, say, Rs.64.05 and at this rate the value of the order is Rs.6,405,000. The importer is worried about sharp depreciation of Indian Rupee against Euro in coming months when the payment is due and brought 100 Euro futures contract (1000 each) on MCX-SX, say, at Rs.64 a Euro. Suppose, at expiry date, Rupee depreciated to Rs.65 the importer would have to pay Rs.6,500,000, but he would gain Rs.100,000 (i.e. Rs.65 - 64 * 100 * 1000) from the futures market and the resultant outflow would be only Rs.6,400,000.

In the short term, firms can make gains or losses from hedging. But the basic purpose of hedging is to protect against excessive losses and to benefit from knowing exactly how much it was going to pay for the import order to avoid the uncertainty associated with future exchange rate movements. 

READ MORE ON  Rupee depreciation, MCX-SX

ADS BY GOOGLE

video of the day

See fresh highs before Budget; like Maruti: Kotak Inst

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.