Currency Risk Management

Ludhiana: We all know that Exports brings in valuable and permanent source of foreign exchange which is required to fund our imports. Any deficit on this account can create imbalance which affects the economic condition of the country. We all are very well aware of this fact as the CAD reached 4.8% of the GDP in the last financial year raising concern for all. The solution we must increase our exports. But it is equally important to understand and know the environment under which we are operating, I mean what global trends we are witnessing today and the challenges we are facing so that appropriate business strategy can be adopted.
Recently WTO Director-General Roberto Azevêdo, in presenting his first global trade-monitoring report to WTO members on 17 February 2014, said that in terms of trade in goods, its volume expanded by less than 2.5% in 2013. Growth projections for 2014 are much improved, hovering somewhere between 4.0% and 4.5%. But this is still below the historical average since 1990 of 5.5%.
As per the recent news India’s exports fell for the first time in eight months in February 2014, however the sharper fall in the imports narrowed down the trade deficit which in turn contributed to the smaller current account deficit helping the rupee to gain its value but simultaneously hurting exports. The recent data also signals that India will miss its export target of USD 325 Mn set for the current financial year.
Today the market is witnessing lot of volatility in the exchange rate. The volatility in the currency if not hedged properly can erode the profitability of the exporters. Sometimes markets witness a high percentage of change in exchange rates in short periods.  Extreme movement in exchange rates have the potential to eliminate the profit factor from export transactions. Each exporter, invoicing in foreign currency, with a condition to receive payment in the future has ‘Transaction Exposures’.
Today various hedging instruments traded on the counter and at the exchange houses are available for hedging the Currency Risk.  Selection of hedging instrument for exports depends upon availability, flexibility and cost.  Export organisation depending upon the resources, must develop some hedging system, which will help in monitoring exchange rate movements and to take timely hedge actions.
FIEO which is an apex trade promotion body set up by Ministry of Commerce, Govt of India to promote India’s International trade, represents small, medium and large scale exporting units spread on pan India basis and is making continuous efforts to promote trade with important international markets in line with the objectives of the India’s Commerce Ministry. FIEO is a single window solution for all those intending to trade with India. Over the years, we have put in all our efforts to help members in promoting their business internationally and worked proactively in taking up the problems and difficulties of exporters with the concerned agencies for their early resolution.  
For the benefit of our members we are regularly increasing the bouquet of our services. Some of the recent initiatives taken by the Federation are:
•    FIEO's weekly e-bulletin to keep you posted with the global developments affecting international trade as well as country’s foreign trade related information.
•    Two more chat services on FIEO website – www.fieo.org. to clarify your queries/issues on Corporate Legal Affairs, Arbitration, International Agreement, Technology Transfer, Patents, Trade Marks, Brand Management, Copyright and related topics and to clarify your queries/issues on quality standards.
•    Press clippings on issues related to International trade on FIEO’s website.
•    FIEO had started FOREX Services which includes Spot rates, Forward rates, Forward Calculator, FOREX Matrix, Pivot Points, LIBOR Rate, Historical Data, Currency Source, Chart (Intraday/ Daily / Weekly / Monthly / Half Yearly / Yearly) at 10.30 am, Monday to Friday (except Gazetted Holidays) at Rs. 3000per annum for FIEO members and Rs. 4000 per annum for non-members
•    Online Foreign Trade Policy on FIEO’s webpage www.fieo.org with amendments on day to day basis.
•    FIEO has tied up with eBay/PayPal to provide free stores, on eBay website, with unlimited product listing facility for a period of 6 months to FIEO members which is otherwise chargeable @ USD60 (approx) per month. This means a FIEO member upon production of their valid RCMC is entitled to an immediate upfront benefit of Rs.23,320 (based on 1 USD = Rs.62 approx) through this tie-up.
(The Author who is Regional Chairman, Northern Region, Federation of Indian Export Organisations (FIEO), made this statement while addressing a seminar on Currency Risk Management at Ludhiana on March 12, 2014).