Sep 13 2018

USDINR Ideas – Volatility is the norm – 13Sept2018

Wow, what a move. This market continues to excite and puzzle (am sure it will remain that way forever). From 69.70 to 72.91 on the 13th day (a whopping 4.6% rupee weakening) and then a surge from 72.91 to 71.91 on the same day (courtesy, the much publicised news flash “PM may call for emergency review this weekend to take stock of Rupee’s rout”). A supersonic 88 paise gain in 2 hours flat. Market participants ran helter-skelter and before they could realise what’s happening, the move was already done.


In this scenario of excessive volatility, let’s introspect to make prudent forex risk management processes:


  1. Markets will remain volatile – that’s their inherent nature. There might be periods of sideways movement and consolidation (that’s the exception).


  1. Do not let your risk management policies be dominated by market forecasts and views. Such forecasts and views might be right, but are you prepared for situations when they go wrong? Am sure, you do not believe that they will be right all the time.


  1. Always do options as a compliment to forwards. Never compare them to choose one over the other – it is like confusing insurance with investment.


  1. Options have always been brushed aside as expensive instruments – they are good and that’s why they are expensive. In my 2 decades of market participation, have always recommended corporates to do options – many put it aside, others showed academic interest but rarely implemented. In the last 3 months, multiple corporates approached and started doing options. Better late than never, but the damage was already done – first in 2008-09, then in 2012-13-14 and now in 2018.


  1. Put your entire mind in developing an efficient risk management system – incorporate industry best practices. Once done, only review and evolve newer ideas. Focus on daily market gyrations will only cloud rational judgement.