Companies with international obligations scramble to mitigate currency risk


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After the rupee dropped to 80 against the US dollar in both over-the-counter and derivatives markets on Thursday, importers and foreign borrowers are scrambling to cover their currency risk, which has caused forward premium to jump 11–17 basis points across maturities on Friday. 0.01 percent is equal to one basis point.

Companies with sizable overseas liabilities worry that margin pressure will negatively affect their nascent recovery following the pandemic as the rupee breaks the psychologically significant 80 threshold against the US dollar for the first time and the spot market USD-INR gauge approaches that threshold.

Oil companies and diamond dealers are among those scrambling to protect themselves from the rupee’s likely future decline. As the rupee’s losses continue, importers are scrambling to cover their currency risks, according to Bhaskar Panda, senior executive vice president at HDFC Bank NSE 0.81 percent.

As the rupee hit psychological lifetime low levels over the past two days, importers have begun to exhibit some signs of panic, according to Kotak Securities currency analyst Anindya Banerjee.

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