Tiruppur based Fabric Exporter- Forex Advisory Service

Tiruppur based Fabric Exporter- Forex Advisory Service

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 severe liquidity crunch he was amidst.

Myforexeye Value Addition:

The client had forward worth 200,000 USD expiring on May 29th, 2020. The forward rate received by him was 72.56. The spot price was 76.16 when the client highlighted his problem, if the cancellation was done at this level the cash loss would have been ?3.6 * 2,00,000 = 7,20,000.

The usual approach during a forward rollover is to aim for a higher spot so that the forward rate received is as high as possible so that even if it’s lost now it will be covered at the time of forward utilization. The aftermath in the client’s situation was incurring heavy cash loss on cancellation during times of liquidity crunch. The client would have needed funding to pay for the cash losses incurred by him.

The Myforexeye advisor suggested him to target a lower spot and wait until forward expiry as huge dollar inflows were expected on account of FDI. On May 29th the spot hit an intraday low of 75.47 and also since the client was a TPO customer our dealing desk executed the deal. The cancellation rate received by the client after adding the bank margin was 75.56, thereby reducing his cash loss by ?1,20,000 (0.60 * 2,00,000).

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