A Delhi based metal importer had import payments of 3-4 million dollars scheduled every month. The client was getting extremely worried about the weakening rupee. The rupee has already depreciated 7.5% in 1.5 months. With growing uncertainties in the market due to COVID-19, he wanted to be sure of not incurring any more losses.
Myforexeye value addition:
To hedge the currency risk, we advised the client to buy vanilla call options. By buying a call option the client has the right, and not the obligation, to buy the underlying currency. The client had an upcoming payment of USD 3,500,000. He bought a vanilla call option for a call premium of 69.70 paise per dollar with a strike price of Rs.74.75. The option had a maturity of 1 month.
In this way, the client was protected from adverse currency movement- an increase in the USD/INR rate. Also, he had upside potential- if rupee appreciated. The maximum loss he had to bear was of the premium paid- INR2.4 million (0.697*3,500,000). But looking at the uncertain circumstances, it was not a big cost. The monthly change in the pair is more than 60 paise. Thus the importer is hedged from rupee depreciation by gaining protection from the downside.
21 Jul 2020 11:30 AM
A Kolkata based metal exporter regularly hedged using forwards and often sought packing credit from their bank, yet they were incurring losses. The client had already availed Myforexeye’s TPO service which ensured rate transparency but to analyze the
13 Jun 2020 03:43 PM
A Tiruppur based fabric exporter had booked forwards expiring on May 29th, 2020 but due to lack of inward remittances, he had to roll over the forward contracts. The challenge encountered by him was the uncertainty in the Rupee spot price and the sev
19 May 2020 12:06 PM
A cloth exporter based out of Tirupur booked around $100,000 of export forwards per month. The client’s bank margin was fixed at 10 paise. The bank had been quoting a cash spot rate of 10 paise above the margin. The client had recently signed our “FX
16 Nov 2019 04:30 PM
Delhi based manufacturers of institutional and home furnishings, fabrics and hospital textiles exporter with market base across the country and other Asian and European nations. The client had recently started using our TPO service and had to book a
05 Oct 2019 05:30 PM
A Pune based industrial Instruments importer engaged in manufacturing of Electrical/ Instrumentation Systems. The client regularly avails import funding in foreign currency from Overseas branches of Indian Origin Banks. The client shared a transactio
21 Sep 2019 06:14 PM
A New Delhi based electronic goods importer. The working capital cycle of the client is 180 days but the Import payments terms are at sight against DP documents. The client used to utilize the Cash Credit facility with a PSU Bank. The client had appl