A Delhi Based Exporter Gets Better Forex Risk Management Advice

A Delhi Based Exporter Gets Better Forex Risk Management Advice

27 Mar 2021 06:38 PM
 

CASE

A Delhi based exporter with a monthly exposure of USD 100,000 was managing their forex exposure by booking window forward contract with their bank. They were availing 90% EPC (USD90, 000) of their exposure and were hedging only 50% (USD 50, 000) of exposure.

They came to Myforexeye to better optimize their forex risk management practices.

SOLUTION

We advised the exporter to switch to fixed date forward contract from window forward contract as in latter they were getting premium till the start of the window period rather than the maturity date therefore losing premium for the differential days.

For e.g. Forward premium from 1st Jan till 30th April

Forward Premium using Window forward contract- 50 paise (1st April to 30th April)

Forward Premium using fixed date forward contract- 75 paise (30th April)

Secondly, the exporter was taking EPC, he was hedging it partially so we advised him to fully hedge the EPC to become independent of directional view (no concern of unfavourable Spot) https://www.myforexeye.com/pcfc-vs-rupee-packing-credit

VALUE ADDITION

By switching to fixed date forward contract from window forward contract the exporter could save up to 20-25 paise per dollar INR 12,500 (50,000*0.25) and by fully hedging the EPC they could additionally save INR 30,000 (40, 000*0.75).