Last Updated :
09 June 2008 at 15:20 IST
Forex Street: Take the right call on Currencies
By Amrit K Basu
On receiving representations from exporters and importers for greater flexibility in management of their receivables/payables, Reserve Bank of India (RBI) has been liberalizing various provisions on booking of Forward Contracts.
Importers and exporters are allowed to book forward contracts on the basis of past performance (without production of any underlying documents) up to the average of the past three years’ or the previous year’s turnover, whichever is higher. Forward contracts booked in excess of 50 per cent of the eligible limit shall have to be delivered and cannot be cancelled.
However, as per RBI, “the aggregate forward contracts booked during the year and outstanding at any point of time should not exceed the eligible limit. Further, the eligible limits are to be computed separately for import and export transactions.”
Importers/exporters desirous of higher limits are required to approach the Reserve Bank for necessary approval.
In simple terms, exporters and importers are allowed to take a call on the movements of the currencies of their exposure.
If an exporter has booked its receivable at, say, Rs.44.00 per US Dollar for a fixed date delivery on 29 Aug, 2008, and if he finds that the Indian Rupee is now being quoted at Rs 43.00 for the same value date, and also he feels that it may depreciate from now onwards, he can cancel the contract and wait for a time when the currency, as per his view, has depreciated enough, and rebook a contract for the same underlying.
In the process, not only he makes a profit of one rupee, but also he is able to book a contract at a rate which is more favorable to him.
The key to this, however, is to take a right call on the currencies. Incidentally, such booking and cancellation can be done in any currency pair, as long as one of the currencies is the currency of exposure.
If one has exports in US Dollars, one can book and cancel in USD/INR, EUR/USD, GBP/USD, and USD/JPY and so on. This gives multiple opportunities to manage the exposures and improve the bottom-line.
Amrit K. Basu is the Head Treasury Products of proFX consulting & allied services, a Treasury Risk Management consultancy outfit. Amrit is also engaged in offering advisory to software companies as well as in placements in the treasury domain. He can be reached at amritbasu@profxconsulting.in
MCX CARDAMOM 13 April 2012
contract was trading at
Rs 699.9 , up Rs. 16.3 . What's your view on it?
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