<b>Shyam Ponappa:</b> Hedging foreign currency risks

yables. Indian companies hedge rupee receivables or payables through banks with forward contracts or tailored options for limited durations, usually not beyond some months. Cross-currency instruments are available abroad for other currencies, e.g. using futures or options in Tokyo, the Chicago Mercantile Exchange or the Philadelphia Stock Exchange, but no rupee-denominated hedging instruments are traded in markets.  This will change with the Dubai Gold & Commodities Exchange announcing the launch of rupee-dollar futures in June 2007, and the RBI permitting currency futures and options, although with many caveats and constraints. How should companies deal with these developments?  Overview
Importers and exporters need products such as rupee futures and options in addition to forwards to manage their currency exposure cost-effectively, with the institutional infrastructure of exchanges where these are traded. With volumes, competition and liquidity, prices are likely to fall significantly. Such developments will give Indian companies access to reasonably priced hedging alternatives, adding to their competitive strength.  For such institutional development, the finance ministry, the RBI, banks, and specialised service providers will have to all pull together. Orchestrating participation from skilled commodities specialists and institutions in commercial centres such as Mumbai would greatly facilitate development, much as currency futures originated in the commodities trading centre of Chicago, and currency options in the specialised securities centre of Philadelphia.  The key will be to design and implement an end-to-end system, with a collaborative (public-private), goal-oriented approach. What could hamper outcomes is moralistic disapproval and proscription of speculation