A Kolkata based exporter, banking with a PSU bank, has an annual exposure of USD 2 million. They were following a particular strategy in order to manage their currency risk and were doing window forwards with their bank. They were partly hedging with their bank and also taking hedge positions on the exchange (NSE).
In the recent past they had hedged at every phase of rupee depreciation till 71.00. Rupee fell sharply from 69.70 to 72.91 in just 15 days. At levels above 72, the exporter got confused - whether to increase his hedge ratio or not. Increasing negative MTM (marked-to-market) was also a cause of worry.
Myforexeye Value Addition
The company enquired about our TFRA (Transaction Forex Risk Advisory) service, on which we provide hedge recommendations for a particular query. A detailed report is prepared on the basis of Fundamental Analysis and Technical factors. We educated them about benchmarking of their forex exposures and the use of options in volatile times.
We had received the query on 10 September 2018, when rupee was trading around 72.30-40 to a dollar. The owner of that company was worried as he had already covered around 75% of their near term exposure, without knowing the rupee direction. His major worry was the trading positions on the NSE as he was staring at an MTM loss.
Analysing his overall positions and his risk appetite, we recommended the client not to increase his hedge ratio since he was hedged 75% already. We explained the technical charts which were suggesting that USDINR was hovering close to its near term peak and it would take a corrective retracement from 72.60 - 73.00. Our first target was 71.50 - 71.60. On 12 September 2018, USDINR touched its lifetime high of 72.91 - RBI intervened heavily with multiple news flashes of PM's scheduled weekend review meeting on rupee's rout - rupee recovered to close at 72.18. On 14 September 2018, rupee recovered further to touch an intra-day high of 71.52, meeting our first target.
The client was satisfied with our analysis report as well as our hedge recommendations.
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