CASE
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.
SOLUTION
In this way, the client was protected from adverse currency movement- an increase in the USD/INR rate (The monthly change in the pair is more than 60 paise) and had an upside potential- if rupee appreciated.
The maximum loss he would have 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 for the protection he got. Thus, the importer was hedged from rupee depreciation by gaining protection from the downside.
VALUE ADDITION
By following the advice of Myforexeye team the client was able to protect his exposure from the prevailing market uncertainty while keeping his upside potential open.
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