Hedging Services

FEDAI has defined Forward Contract as a contract deliverable at a future date, duration of the contract being computed from spot value date at the time of transaction. Forward Contract is an agreement to exchange one currency for another currency on a specific date in future, at a pre-determined exchange rate, set at the time the contract is made. The contract locks in an exchange rate and regardless of what the exchange rate may be on the future date, the transaction will be put through at the contracted rate. Under Forward Contract, the customer has not only the right to acquire or sell foreign currency on a future date at a pre-determined rate, but also has an obligation to meet the commitment. The Forward Contract is priced either at a premium or discount over the spot rate.

Benefits to an exporter

• Protection to profitability from business operations.
• Protection against unfavourable exchange rate fluctuations.
• Forward contracts cater for a diverse type of commercial and financial transactions; hence exporters can make use of it.
• The exact value of the export order can be calculated on the day it is processed.
• Budgeting and costing are accurate.

Modes permitted in Forward Contracts

• Contracted Exposure: Exporters/Importers can hedge their exchange risks on the basis of underlying Documentary evidences.
• Probable Exposure: Exporters can hedge their currency risk on the basis of a declaration of an exposure and based on past performance up to the average of the previous three financial years’ (April to March) actual turnover or the previous year’s actual turnover or the previous year’s actual turnover, whichever is higher.
• Small and Medium Enterprise (SMEs): Small and Medium Enterprises having direct and / or indirect exposures to foreign exchange risk are permitted to book / cancel/ roll over forward contracts without production of underlying documents to manage their exposures effectively.
• Resident Individual: Resident individuals can book forward contracts to hedge their foreign exchange exposures arising out of actual or anticipated remittances, both inward and outward, without production of underlying documents, up to a limit of USD 2,50,000 based on self-declaration.

Indian exports have surged over the last decade owing to an unprecedented boom in sectors like software, biotechnology, gems, jewellery, textiles etc. As a result of this, the volume of inward remittances has also increased significantly. To shield the firms engaged in regular export and import from the exchange rate fluctuations, RBI has allowed parking of foreign currency by exporters in an account designated as Exchange Earners Foreign Currency Account (EEFC).

CSB offers resident Indians to open, hold and maintain a foreign currency account known as Exchange Earners’ Foreign Currency (EEFC) Account. This account will be maintained only in the form of non-interest bearing current account. The exporters may keep their foreign exchange receivables in this account up to the limits specified by RBI.

The balances held in this account may be utilized by the exporters to repay packing credit advances in INR and/ or foreign currency. The exporters may also extend trade related loans/advances to overseas importers out the balances in EEFC account subject to compliance of FEMA guidelines.

Benefits to an exporter

• Retain foreign exchange earnings in the currency he receive the funds.
• Enjoy preferential rates at the time of conversion and hence save on his cost.
• Balances held in the account can be used to repay other loans.
• Enable him to offer more competitive terms to trading partners.

It is a foreign currency account meant for the firms/ companies dealing in purchase/ sale of rough or cut and polished diamonds, diamond studded Jewellery. Such firms with good track record of at least three years in import/ export of diamonds with an annual average turnover of Rs. 5 crores or above during the preceding three licensing years (from April to March) are permitted to carry out their business through designated Diamond Dollar Accounts (DDAs). CSB provides specialized Dollar accounts for firms in this arena. Under the DDA scheme, it would be in order for bank to liquidate PCFC granted to a DDA holder by dollar proceeds from sale of rough, cut and polished diamonds by him to another DDA holder.