Go for hedging to minimise forex risk: Experts

Hedging protects companies and individuals in minimising the risk in the forex markets.

Sharath Chowdary

With the changing dynamics  and increased volatility of exchange rates across the globe, currency prices fluctuate all the time and they are open to risk in the foreign exchange market just like any other financial market. While importing or exporting goods to other countries, the value of foreign currency may change and this may result in huge losses to companies. 

Hedging is the best way to minimise the risk for trading companies and individual investors participating in the forex markets, Pratap Chandiramani, Head - Corporate Business (Currency Derivatives), Bombay Stock Exchange (BSE) told The Dollar Business.

He was participating in a seminar on ‘Managing Currency and Commodity Risk’ organised by Karvy Stock Broking and Federation of Telangana and Andhra Pradesh Chambers of Commerce and Industry (FTAPCCI) in Hyderabad on Friday.

Explaining about the currency hedging, Chandiramani said, “Hedging is similar to insurance which protects financially from risk. In case of currency devaluation or any other uncertainty, hedging offers an environment to manage risk and to reap rewards for participating in the forex markets.”

During the seminar, Ramesh Varakhedkar, Vice President, Karvy Stock Broking said, “Only corporate companies go for hedging. Most of the small and medium enterprises (SMEs) and individual entrepreneurs are not aware of the hedging benefits. We are educating them through these seminars.”

He further said, “More than 30% of the banks’ revenues come from forex transactions. For SMEs, banks offer hedging at around 30-40 paise per US dollar, while Karvy offers them as low as 1-2 paise per US dollar. Price transparency, ease of use, long working hours, one-time documentation and latest technology are some of the benefits offered to our customers.”

“Along with efficient hedging services, Karvy also provides advisory services by focusing on the currency market. We also negotiate with banks in availing better conversion rates to our customers,” he added.

The Dollar Business Bureau - Jun 11, 2016 12:00 IST