Forward Hedging

»  Helps to lock exchange rate for a future receipt of payment of USD.

»  Could be done for as short as 3 days to more then 12 months​.

»  Regulated by RBI guidelines.It is not speculation.

»  Flat forward exchange rate or Par forward – Constant exchange rate for all the months

Exchange rate improvement in day to day remittances

»  Managing intra-day remittances with the existing bank through advisory and execution

»  Dedicated expert with analytical tools and software to monitor FX pricing

»  The savings is derived from losses due to inefficiency and better market timing

Options Hedging

»  It is like an insurance contract in which you pay a premium and lock exchange rate for a future receipt or payment of foreign currency

»  On option maturity date, you may chose the ongoing exchange rate or the locked rate, whichever is beneficial to settle the transaction

» Tenor could be as short as 3 days to 12 months

»  Complex options are also possible (we suggest to stay away from complex options and only consider plain vanilla ones)​

Forwards vs Options

»  Executing and cancelling forward contract is far more transparent than option

»  Pricing of option premium is opaque and could differ form bank to bank

»  In highly uncertain environment, options could be considered for a short period

Long Term Foreign Exchange (LTFX)

»  Hedging for more then 12 months subjected to applicable guidelines is called LTFX.

»  The real issue is – what is the business situation? Should one use LTFX and What is the correct pricing that bank should offer?

Swaps

» Common swap products are Principal Only Swap (POS), Full currency swap, Coupon only swap and Interest rate swap (IRS)

» Can be useful to mitigate the risk of currency or interest rate on a loan 

» Sometime corporates also use it to save interest by converting loan from one currency to another

» There are specific RBI restriction using net wroth as a criteria for eligibility of executing swap transactions

Large Value Transactions

»  Large value FX transactions on account of Private Equity (PE), FDI,ODI,FII,etc

»  Generally the size of such transactions is more then USD 50 mn

»  We could assist in better processing of exchange rate booking

​​Managing Transactions In Exotic Currencies

»  Handling transaction in currencies like ZAR (South African Rand), MYR(Malaysian Ringgit), PHP(Philippine Piso), CNY(Chinese Yuan),THB(Thai Baht),KRW(South Korean Won) can be difficult

»  Many banks in India even do not have NOSTRO account in these currencies

»  We could be of help to arrive at a solution

Libor Hedging

» There are various products to hedge libor- simple interest rate swaps to complex options

»  It is important to understand pros and cons of the product being used to hedge libor and its cost

» The timing of libor hedge is also very important. Lot of times, the hedge cost itself is too high and it discounts most of the future hikes in interest rates

» The duration of libor hedge is another important decision sometimes it is better to hedge only for short period and sometime for entire term of the loan  

ECB Hedging

»  ECB gives a lower interest rate but adds to the currency and libor risk and that too for a very long period.

»  A complete hedging of both currencies and libor leaves hardly any interest saving, while not hedging exposes to huge risk.

»  The key is to scientifically monitoring and manage the risk to achieve cost savings.