Bloomberg News

Hedge Dollar-Rupee Exposure in Futures, QuantArt’s Lodha Says

February 03, 2012

Feb. 3 (Bloomberg) -- Samir Lodha, managing director at QuantArt Market Solutions Ltd. in Mumbai, recommends Indian corporates use the currency futures market to hedge their dollar exposure.

The Reserve Bank of India yesterday asked commercial lenders to “rigorously evaluate” the unhedged foreign-currency exposures of their clients and charge a premium for such risks while extending credit to them.

“I advise exporters to buy options to sell their dollars at a strike price of 50.00. The rupee option market is fairly liquid up to five years and places no obligation on the exporter to sell,” Lodha wrote.

“The only risk now is a big event risk triggered by Europe, where all currencies depreciate against the dollar. Fifty is a psychologically important number and it seems so even for the RBI. Corporates could also use call spreads with hedging costs of about 2 percent to 2.5 percent, compared with the 5 percent cost of a complete hedge.”

--Editor: Andrew Janes

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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