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Indian Currency Market A Technical Perspective for Traders and Hedgers
Currency
Pair
Prev.
Close
Resistances for
1-5 days
Resistances for
5-60 days
62.26
62.40
62.17-61.92
62.42-62.84
61.15-61.00
63.13-63.49
66.32
65.93
65.67-65.00
66.67-68.23
64.39-63.00
69.27-74.00
CMP
USD/INR
EUR/INR
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Percentage of sales or purchases (especially receivables and payables) that is done in foreign currencies.
Is the environment such that the importer/exporter is not in a position to pass on the Currency losses by
increasing the prices?
Can the importer/exporter enter into price variance clauses with the other party based on exchange rate
fluctuations?
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firm?
Does the importer/exporter have a tight cash flow? Can adverse Currency fluctuation cause problems for the
At what point will a change in exchange rates affect the profitability significantly?
Which Currencies is the firm exposed to and in which Currencies does it have payment obligations?
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Illustration 1
A crude oil importer wants to import oil worth USD 1,00,000 and places his import order on 15 July 2013, with the
delivery date being four months later. At the time of placing the contract one US Dollar is worth 65.50 Indian Rupees in
the Spot market. Lets assume the Indian Rupee depreciates to INR67.50 per USD by the time the payment is due in
October 2013, then the value of the payment for the importer goes up to INR 67,50,000 rather than the original INR
65,50,000. The hedging strategy for the importer at the time of placing the order would be:
Now
Current Spot rate (15 July 2013) 65.5000 - One USD - INR contract size USD 1,000
Buy 100 USD - INR October 2013 contracts on 15 July 2013 (1,000 * 65.7000) * 100 (assuming the October 2013 contract
is trading at 65.70 on 15 July 2013)
Later
Sell 100 USD - INR October 2013 contracts in October 2013 at 67.50
Profit/loss (Futures market)= 1000 * (67.50 65.70) * 100 = 1,80,000
Purchases in Spot market at 67.50
Total cost of hedged transaction (67.50 * 100,000) 1,80,000 = INR 65,70,000. (transaction costs not considered)
Had he not participated in the Futures market he would have to pay Rs.67,50,000 for the import.
Illustration 2
A jeweller who is exporting gold jewellery worth USD 50,000 in July 2013 wants protection against possible Indian Rupee
appreciation in December 2013, i.e. when he receives his payment. He wants to lock in the exchange rate for the above
transaction.
His strategy would now be:
Sell 50 USD - INR December 2013 contracts (on 15 July 2013) 65.90 - One USD - INR contract size USD 1,000
Later
Buy 50 USD - INR December 2013 contracts in December 2013 at 65.10
Sell USD 50,000 in Spot market at 65.10 in December 2013 (assuming that the Indian Rupee appreciated to 65.10 per
USD by the end of December 2013).
Profit/loss from Futures (December 2013 contract) 50 * 1000 *(65.90-65.10)
= 0.80 *50 * 1000 = Rs 40,000
The net receipt in INR for the hedged transaction would be: (50,000 *65.10) + 40,000 = INR 32,95,000.
Had he not participated in the Futures market, he would have got only INR 32,55,000.
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