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May 2014

A. P. (DIR Series) Circular No. 114 dated 27th March, 2014

By Gaurang Gandhi Chartered Accountant
Reading Time 2 mins
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Risk Management and Inter Bank Dealings

Presently, exporters are allowed to hedge currency risk on the basis of a declaration of exposure up to an eligible limit which is the average of the last 3 financial years’ (April to March) actual export turnover or last year’s actual export turnover, whichever is higher. Similarly, importers are allowed to hedge up to an eligible limit which is 25% of the average of the last three financial years’ actual import turnover or last year’s actual import turnover, whichever is higher. All forward contracts booked under this facility by both exporters and importers have to be on fully deliverable basis. In case of cancellation, exchange gain, if any, cannot be passed on to the exporter/importer by the bank.

This circular provides that, exporters/importers will now be entitled to the gains/losses resulting from the cancellation of up to 75% of the contracts booked within the eligible limit (as mentioned above). Contracts booked in excess of 75% of the eligible limit will be on deliverable basis and cannot be cancelled. Hence, in the event of cancellation the exporter/ importer will have to bear the loss but will not be entitled to receive the gain.

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