How to manage FX Risk in Volatile Market

Forex is not my Business! The Biggest Myth Forex is not my Business!

USDINR 10 year chart Taper Tantrum 25% in 5 months PM Modi Election 15% in 9 Months 4% Appreciation in 5 months USDINR 10 year chart GFC and Fiscal deficit expansion 16% in 5 Months 5% Depreciation in 2 months Grexit and Euro Crisis 23% in 6 months RBI + FII Inflows + UP Election 4% in 5 months Steady depreciation in 3 years UPA Re-election 15% in 1 year

Systematic Factors leading to Volatility in USDINR DXY Oil Prices US Treasury yields General Elections

Forex Gains and losses even out over a period of time Common Myths Forex Gains and losses even out over a period of time Forward contracts are the only available hedging tools Inter Bank rates may differ from Bank to Bank

Case Study : 2016 Brexit In the three months following the Brexit vote, the British currency fell from $1.45 to a pound to $1.25. In the last quarter, JLR (Jaguar Land Rover PLC) lost £400 million (about Rs 3,300 crore) in incremental foreign exchange losses, according to Kenneth Gregor, chief financial officer at JLR. The fall in net profit is close to 96% of Quarterly Profits. Source: Report dated 17th March 2017 in Forbes India http://www.forbesindia.com/article/leaderboard/tata-motors-currency-bets-misfire/46151/1

Forex Loss as % of Turnover Case Study : 2011 - Rupee Slides from 45 to 52 (Rs. In Crores) Company Profit Before FX Loss FX Loss Reported Profit FX Loss as % to Profits FX Turnover Forex Loss as % of Turnover JSW Steel Ltd 1614 513 1101 46.59% 4113 12% Tata Motors Ltd 2637 294 2343 12.54% 2206 13% PFC Ltd 41.97 31.17 10.8 288.61% 822 3.79% Back Source : Moneycontrol

Benchmarking Case study For Importers Are Forwards Always Effective? Day 0 Spot 71.50 Day 30 Spot ? Forward Premium : 25 Paisa Book Forward contract and fix the price for Day 30 at 71.75 Scenario 1 Stay open and do the conversion at the price prevailing on Day 30 at ? Scenario 2 Can we hedge the exposure through any other alternative tool ? Scenario 3

Structured Hedging For Exporters Participation at Market Receipt at 72.25 Unlimited Protection Unlimited Participation Buy Insurance 71.50 Sell Insurance 72.25 Zero cost seagull

Structured Hedging For Importers Participation at Market Payment at Spot – Re 1/- Unlimited Participation Protection Unlimited Protection Payment at 70.75 Sell Insurance 70.75 Buy Insurance 71.75 Sell Insurance 72.75 Zero cost seagull Back

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EHOM Historical Recommendation Edelweiss Hedge Optimizer Model (EHOM) recommendation for today is “Moderate Hedge”. Date Spot EHOM Recommendation Import Perspective Percentage move 12th Aug 2018 68.79 Hedge 0.3% INR Appreciation   1st Nov 2018 73.39 Unhedged 7.26% INR Depreciation 5th Dec 2018 70.71 4.17% INR Appreciation 6th Feb 2019 71.54 1.17% INR Depreciation

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