Hedging on foreign exchange

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

26 August 2012 Sir,
My doubt is regarding hedging of exporters by using options as hedging instruments launched by NSE.

Suppose an exporter has delivered goods $10,00,000 on 1st august 2012 where the $ is at 55.00.
he would likely to receive the payment after 2 months i.e., on Oct 1st.

Where the dollar movement is un predictable, if the exporter tend to go for option(i.e.,) Put option, his obligation is Premium.

say
$10,00,000 @ 55.00 = Rs. 5,50,00,000/-

Can u plz explain me the hedging mechanisam in options, and any other strategy for hedging purpose.

for MSME's paying of premium is difficult because it hurts their working capital, is there any option model where there will be no premium payout (ex:- butterfull option, or straddles)

Sir, exactly my query is, Is there any model for hedging in options which cannot have any premium payout, which would beneficial to MSMES.

Thanks & Regards,
G.Prasanna Kumar.

CA Suresh Jain

CA Suresh Jain (Expert)
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28 August 2012 You can contact your banker who will structure sell and purchase of forex in such a manner that you need not pay any preminum. but, mind well this type of structures come with an inherent risk. You can also buy and sell put at different values on NIFTY where received and paid premium is set off. But, this is also not risk free. You have first to decide what you want - want to mitigate forex risk or save money. If you really want to hedge the risk simply sell the currency in forward where you will get the premium also. sureshjain.nj@gmail.com