Importance of Forex Risk Management By Anil Bhansali VP- Fx Risk Advisory
India Leads Guar… • India produces 1 - 1.25 million tonnes of guar annually. • India is the largest producer with about 80% of world production. • Guar gum exports surged from Rs 2,938.70 crore in 2010-11 to Rs 21,287 crore in 2012-13. • The substantial increase in exports has been due to a strong demand from gas exploration companies in the US and Europe
Tough Road… • 55% drop in price value,2013 • Increasing number of players. • New state’s entering Guar market. • Increasing competition, would impact the margins.
Increasing Risk… • Competitive Pricing • Reducing Margins • Commodity Risk • Forex Risk
Rupee depreciated 24% after QE tapering talks • Debt market still stands with outflow of more USD 8 billion • Recovery seen on the efforts of RBI • Still a lot of confusion in the markets
If… • QE tapering in delayed by mid 2014 • Pro-Business Government is elected, with majority • Trade and Fiscal deficit gets under control THEN WHAT???
Strategies for Exporters • Every Exporter should have • Risk Management Policy. • Proper Hedging strategies. • Forward Contract should be booked with Option period to take advantage of forward premium. • E.g. 1st day of Month to Last day of month • Middle of the Month to Middle of next month • One of the Hedging Strategy can be to book 50%,40% and 30% of monthly exposure for next Three months respectively and for rest Nine months 10% of monthly exposure. • Keep a stop loss for all uncovered positions.
Tips on Fx management • Have LIVE Mark to Market linked with data software. • Capture all exposures like Rupee PC, PCFC, forward contracts, ECB etc. • Maintain Customized MIS Sheet as per company business cycle and policy. • Consolidated monthly exposures. • Weekly Discussion on Exposure. • Quarterly Meetings to discuss further stategies
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