What is the difference in hedging on exchange and hedging with bank?
There are few differences. The main difference is:
- On an exchange, you cannot settle the contract by giving currency or taking foreign currency. You only settle the difference in rates. While with bank, you exchange currencies at pre-determined rates.
- Hedging on exchange is relatively more transparent and less document intensive as compared to a bank
- While doing hedging for long term like 6 months or 12 months, the hedged rate is better with bank than on an exchange. For short term like one month, both are same
