Exporter Saved Substantially On Transaction Charges & Capitalize On A Weaker Rupee

Exporter Saved Substantially On Transaction Charges & Capitalize On A Weaker Rupee

31 May 2021 09:10 PM
 

Case

A perishable goods exporter needed to hedge USD 0.5 million inwards anticipated in July but was unable to hedge as forward limits were not available to him. Although his monthly exposure was USD 500k, bank was charging 20 paise bank margin and was indifferent to any negotiations for a reduction in the margin. The USDINR spot was close to its highest levels since late August 2020(around 75 in April 2021), he didn’t want to miss the opportunity.

Solution

We advised the client to open a trading account with the exchange and sell 500 lots of dollars (1lot= 1000 dollars) in futures market to enable him to capitalize this opportunity.

We recommended him that as and when he expects the inward he can square off the same amounts of lots in the futures market.

The client was able to hedge his forex exposure by paying 20 rupees per lot of brokerage in the futures market.

Value addition

By hedging on the exchange, client was able to save substantially on transaction charges and capitalize on a weaker rupee.

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