Hedging is loss minimization, not profit maximization: RBI official
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From left, Mr. S Jamati, Dy. Director General, FIEO(WR); Mr. P S Desai, Dy. General Manager (Forex), RBI; Mr. V Singan, AVP, Treasury Services, Mumbai; and Mr. Arpit Shah, AVP, Trade Services, Gujarat. |
Globalization and increasing internationalization of financial transactions have profoundly transformed foreign exchange markets, not only in size, but also in complexity, variety of products, number of players, technology use and settlement processes. Mr. P S Desai, Dy. General Manager (Forex), RBI, said this while addressing a seminar at Ahmedabad. The seminar titled "Seminar on Foreign Exchange Risk Management" was organized by FIEO in association with HSBC Bank on 4th July.
Mr. Desai said, "Given the volatility in forex markets and its direct impact on the profitability of enterprises, managing foreign exchange exposures remains a great challenge for any organization. Today, there is a need that exporters have in-depth knowledge of foreign exchange risk management, as it is very difficult to project the value of rupee in near future. In order to avoid risk and concentrate on business, it is essential that the exporters use instruments made available by various banks to safeguard against fluctuating rupee." Defining hedging, he said hedging in foreign exchange market is avoidance or elimination of risk and the basic purpose of hedging is loss minimization, not profit maximization.
Explaining the role of RBI, Mr. Desai said RBI today acts as a facilitator rather than a regulator and hence FERA has been replaced by FEMA. Offences under FERA were treated as criminal offences while under FEMA they are treated as civil wrongs, he added.
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"RBI has already introduced current account convertibility and capital account convertibility would be introduced when the time is ripe. The export proceeds realization period has also been extended from six months to one year for status holders." Mr. Desai maintained. Earlier, Mr. S. Jamati, DDG, FIEO (Western Region), introduced the subject and spoke about Federation’s activities with special reference to its warehouses being launched in Romania and Sharjah as marketing avenues for exporters. |
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A view of the participants. |
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explaining the scenario of macro indicators, FII/FDI flows into the country
and USD/INR movement for the last 10 years, Mr. Varadarajan Singan, AVP,
Treasury, HSBC, also stressed upon the importance of hedging. "Indian
rupee has lost more than 5.5% since March 2008 which is too much and too
sudden. This is mainly due to high oil prices, inflation and
strengthening of dollar against other major currencies. Still there are
various factors that can lead the rupee to appreciate again. FII and FDI
flows are expected to continue pushing the interest rate. Hedging can
be done keeping in mind previous three years’ average exposure or last
year’s exposure, whichever is higher." He said.
Mr. Singan explained the tools available for hedging. He said, "FX forwards which represent a commitment to exchange a specific quantity of one currency for another at a specified price on a specified future date. Forward contracts are the most direct and popular method of eliminating the short-term transaction risk & FX options in which the currency option holder has the right, but not the obligation, to buy (or sell) a specific quantity of a currency at a specified exchange rate on or before a specified date. Currency options become attractive when the exchange rates can move in either direction and the exporter, importer wants to avoid the downside risk but wants to keep the possibility of gains if the exchange rates move favorably." He stressed that documentation for forward and option is one time process and is not much cumbersome as the documents required are just ISDA (standard documentation for executing Forwards, options), board resolution, RBI declaration, debit authority & FD margin. Mr. Arpit Shah, AVP, Trade products, HSBC, advised the exporters to consider unforeseen situations while accepting the overseas order to avoid risk. He explained how Documentary Credit by HSBC could help an exporter to avoid certain risks, which he might be exposed to. Documentary Credit is an undertaking given by the Confirming bank to pay the beneficiary of the Letter of Credit in case of non-payment by the Issuing bank on the due date. "HSBC, which is present in India since more than 150 years and have branches in 77 countries with 9800 offices, can help exporters to avoid such risk of non-payment if the tool of Dual Confirmation is used", he added. |
Joint Secretary (Drawback) Mr. Najib Shah, a 1979 batch Indian Customs & Central Excise Service Officer has taken over as the new Joint Secretary (Drawback). Mr. Shah has served as Commissioner of Central Excise, Salem from 2003 to July 2004, as Commissioner of Customs (Import), Nhava Sheva from 2004 to July 2004, as Commissioner of Customs (Import), Nhava Sheva from July 2004 to Jan 2007, and as Additional Director General of Central Excise Intelligence, Mumbai from Jan 2007 to June 2008. A FIEO delegation led by Director General Mr. Ajay Sahai called on Mr. Shah in his office and congratulated him on taking over as Joint Secretary (Drawback). |
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Mr. Najib Shah,(left) discussing with Mr. Ajay Sahai (centre). On Mr Sahai right is Mr. Prem Khamesra, Director(Finance), Mirza International Ltd., and on his left is Mr. Ajit Manchanda, Director(Corporate Co-ordination), Taj Hotels, Resorts & Palaces. |
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Mr. Ajay Sahai, Director General, FIEO (right) presenting a bouquet to the New Joint Secrtary(Drawback), Mr. Najib Shah. |
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Visa norms relaxed by Saudi Arabia Saudi Missions abroad have been authorized by their government to issue visas, including multiple visas, for a period upto 12 months to Business Persons. For this purpose, the term business persons would mean the owners of the companies, chairmen, members of the managing board, their representatives and managers working in the respective companies, whether men or women. Saudi Missions have been authorized to issue such business visas even without invitation from Saudi company or introductory letter from Saudi Chambers of Commerce and Industry |
