A Paper manufacturing company with import and export turnover of more than 100 crs, is looking at exports in a big way. The company’s finance team is unaware about an efficient forex risk management system. The company’s management have assigned the task to the risk management team at Myforexeye. They are banking with a PSU bank and have faced operational challenges in their branch banking arrangements.
Myforexeye Value Addition
In a review meeting to discuss the ongoing risk management practices and strategies with the management, we came up with an idea to book forward for exports as soon as the order gets materialised. The management does the costing of export orders at the ongoing spot rate. By following the first day hedge strategy, the USDINR premium of 4 – 4.5% per annum can be capitalized. In the very first order of around $0.5 million, we followed the same strategy and booked the forward contract for February end maturity. The inward remittance that was expected in middle of January came at the first week of February and even after instructing the branch to utilise this forward, the conversion was done at the market rate. The balance inward got delayed and did not come in February, leading to the cancellation of the forward contract and resulting in a cash loss. Instead of forward cancellation only, we did a rollover of this transaction at the common spot, to neutralize the profit and loss effect. The rollover was done partly for the month of March and partly for April. Though the forward contract rollovers were done with the Treasury, their branch did not report the cancellation and rollover transactions at their end and hence the transactions were not executed due to reporting issues.
In the process, the company lost a big amount on forward cancellation and also an opportunity to recover the loss by way of forwards because of inefficiency of the bank’s branch. We extracted the audit trail of the entire transaction and got the audio recording of the deal as well as e-mail communications to the client. The treasury was asked to check the deal details with their back office. After numerous calls and e-mails, the treasury agreed to honour the same rates that we had booked on roll-overs. The treasury apologised for the lack of professionalism by their branch.
In the whole process we managed to get the company out of the loss they incurred on forward cancellation by way of getting the rollover forwards reinforced.
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
07 Sep 2019 03:03 PM
A large importer based in Delhi. The client had started a relationship with Myforexeye 6 months back. The client was getting extremely worried about persistent rupee weakness. Their import payment of USD 1 million was due for September 2019.
17 Aug 2019 05:53 PM
A South Indian Electric Vehicles manufacturer well known for selling battery operated two-wheelers. The company regularly imports various components required to assemble two-wheelers from different geographies of the world. Given the focus on green e