Hedging Forex
Are these problems creating a concern?
> INR moving towards 73 or 67?
> Whether to hedge or not to hedge?
> Confused whether to use Forwards or Options?
> Are you facing loses in forward contracts?
> What should be your hedging strategy?
Edugains can help you in these volatile times with Hedging Strategy
Free Q&A with Forex Hedging Experts
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Your Business. Our Strategies. Joint Execution. Use our services for Hedging Forex
Exposure Management
Track upcoming forex payments, loan payments/drawl in a scientific way using our proprietary analytical tools.
Hedging Strategy
Develop strategies as per business need. We have separate strategies for hedge and non hedge transactions. For banking, use our analytical tools to constantly evaluate when to borrow in USD and when in INR
Execution
Release your bandwidth by executing each transaction with your bank and ensuring correct price. Maintain powerful MIS with ability to generate intelligent insights on risk coverage, costing, performance etc.
Instruments for Hedging Forex
Forex Spot trades are primarily meant for purchase or sale of foreign currency for immediate delivery. Typically trades are settled in T+2 days. This is the most basic hedging tool, usually for a concise period of time.
Foreign currency option give the purchaser the right to buy or sell but not the obligation. This makes it the preferred way of forex hedging. Like insurance, there are premiums to be paid for buying foreign currency options, and this requires an upfront payment.
As per Investopedia, a currency forward is a binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. They allow either individuals or businesses with exposure to currency risk to protect themselves from adverse moves in the foreign exchange market.
A currency future is a futures contract to exchange one foreign currency for another at a specified date in the future at a specified rate (exchange rate).
A swap is a forex contract wherein the buyer and seller exchange equal initial principal amounts of two different currencies at the spot rate. The buyer and seller exchange fixed or floating rate interest payments in their respective swapped currencies over the term of the contract. On maturity, the principal amount is re-swapped at a predetermined exchange rate so that the parties end up with their original currencies.
Our Blogs on Hedging Forex
Why Forex Risk Management is important for SME corporates?
Why forex risk management is important for SME and Corporates today? The foreign exchange market is a global market for currencies that is estimated to be USD 5 Trillion per day as per Bank of International Settlements. For a business dealing and sourcing across the world, foreign exchanges bring their risks along with it. Read More
New Forex Trading Platform To Bring Transparency For Retail Forex
New Forex Trading Platform To Bring Transparency For Retail Forex: The Reserve Bank of India recently announced the roll out of a new forex retail trading platform. The retail forex platform is also called FX Clear. The Clearing Corporation of India (CCIL) shall roll this currency trading platform on August 5, 2019. The main aim of this step is ensuring fair and transparent pricing for retail customers Read More
How Small Business and MSME’s can benefit from Hedging forex?
Indian Forex market was deregulated in 1993 and exchanges rates were allowed to be driven by the markets. As the Indian economy opened up, increasingly businesses have to transact in the overseas market for either sourcing raw materials or machinery. Indian Businesses are also are now exporting worldwide across Goods and services. This increasingly global integration of Indian economy exposes businesses to the fluctuation of currencies and risks associated with it. Read More
Frequently asked questions on Hedging Forex
Is there a cost of hedging currency risk?
There is no additional cost for hedging. Bank must set up internal credit limit for its customer to hedge.
Is there a difference in the way bank computes exchange rate for export and import remittance?
Yes, there is a difference. The correct method is Customer rate = Live rate – Bank margin – Discount. For exports, reducing discount from live rate reduces final rate for customer. While in imports, it improves the final rate. It is important to find whether bank is passing discount for import transaction and how much.
How can I reduce the cost of option premium?
Option premium is a function of strike price, duration and volatility in market. You may reduce duration or buy out of money option to reduce premium. Alternatively, you would have to opt for exotic options.