Inhouse Training PPT

8/13/2019 Inhouse Training PPT

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Inhouse Training onForex

-Greenback Forex Services Pvt. Ltd.


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Greenback Forex Services Pvt. Ltd.

Indias Leading Consultant in the area of Currency & Interest rate risk

management.

Incorporated in 1995.

Promoted by Mr. Subramanian Sharma and Mr. Manis Thanawala.

Pan Indian presence with Head Office stationed at Mumbai and 6branches across India.

Employing over 100 professionals and catering to over 1500 clients across

India.

Wide range of product portfolio aiming to address the needs of corporatein the field of Currency and Interest rate risk management.

2


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Greenback Business Model

GREENBACK

Regal Solutions

Pvt. Ltd.

Greenback Forex

Services Pvt. Ltd.

GreenbackCommodities

Pvt. Ltd.

Forex Policy andForex Audit

Forex &DerivativesAdvisoryServices

HedgeAccounting

RegulatoryServices

BuyersCredit

SuppliersCredit

CommoditiesHedging for

Corporate

CorporateTraining

GreenbackFinancial & FX

Services Pvt. Ltd.

USD/INRHedging onExchanges

(MCX-SX/NSE)

ECB


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Introduction to Branches

Head Office - Mumbai

GB-11, Karmastambh, Opp. MTNL Office,L.B.S. Marg, Vikhroli (West), Mumbai 400 083.Tel # 022-67565000Email: [email protected] Person: Mr. Manis Thanawala

Mr. Subramanian Sharma

Ahmedabad123, Sunrise Mall,

Near Swaminarayan Temple,Judges Bunglow Road, Vastrapur,Ahmedabad - 380015Tel # 079-40028651Email: [email protected] Person: Nishant Patel

BangaloreNo. 115/2, 1stFloor,

11thCross, Margosa Road, Malleshwaram,Bangalore 560 003.Tel # 080-41280084/41280109Email:[email protected] Person: Ganesh S

Chennai6 Alsa Towers, Commercial Block,

1st

Floor 186/187, Poonamalle High Road,Kilpauk, Chennai 600 010.Tel # 044-26612009 / 2013Email: [email protected] Person: Adwait V

Delhi206, Hemkunth Chamber,89, Nehru Place,

New Delhi 110 019.Tel # 011-32570477Email: [email protected] Person:Sanchayan Tewary

HyderabadPlot # 38, Opp. Surya Paper House,Road # 5, Jubilee Hills,Hyderabad 500 033.

Tel # 040-42408051Email: [email protected] Person:Prashant Patel

Kolkata1, Sarojini Naidu SaraniShubham, Room # 205Kolkata 700 017

Tel # 033-22808715 / 8716Email: [email protected] Person:Vikash
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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What is Risk?

Defined as the volatility of unexpected events

What is Currency Risk?

Risk that the currency rates will move in the adverse direction.

Example : In case of USD/INR, if USD appreciates the Indian Importer

would be at a loss and if USD depreciates the Indian Exporter would be at

loss.

Introduction


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Need to manage risks

Insure against adverse exchange rates

Protect operating profits

Optimizing exchange gains

Contain losses

Volatile and uncertain forex markets

Cost Reduction

Achieve budgets and targets

Maintain sustainable business in light of stiff competition


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International Forex Market

Features Trades 24-Hours a Day from Monday to Friday

Has Maximum Liquidity , daily turnover of nearly $1.5 trillion

Almost 90% of the transaction are speculative in nature

Is Over The Counter Market

Efficient Market

Participants Banks, Hedge funds, Mutual Funds, Investors

Major markets Australia, Japan, Hong Kong, Singapore, UK, USA


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Forex Terminologies

Concept of Base Currency & Quoted Currency

USD / INR

Base Currency / Quoted Currency

First two letters of the code are the two letters of the Countryscode and thethird letter represents initial of the Currency name of respective Country

For example: USD - US represents United States and D represents Dollar

Except EURO as it is the official currency of Euro Zone


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Forex Terminologies

Two way quotesForex markets works on two way quotes

Bid rate - rate at which the bank is ready to buy

Ask rate - rate at which the bank is ready to sell

The difference between the Bid and the Ask is called the Spread

Quotation methods

Direct method (European Method) Indirect method (American method)


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Forex Terminologies

Bid AskUSD/INR 47.00/47.02

Bid Ask

Bank is ready to buy, Bank is ready to sell

i.e. exporters will have at this rate, i.e. importers will have

to sell at this rate to buy at this rate

Note : In case of indirect quote, one must take care of Bid Ask rate.

Also the difference between the Bid/Ask is Banks profit.


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European Method(Direct)

xchange Rate expressed in localurrency in terms of per unit oforeign Currency.

Bid AskBanks buying rate Banks selling rate

USD/INR 47.00 47.02

USD/JPY 90.00 90.05

EUR/USD 1.4700 1.4705

GBP/USD 1.6600 1.6605

AUD/USD 0.9000 0.9005

NZD/USD 0.7200 0.7205

American Method(Indirect)

Exchange Rate expressed in foreigncurrency in terms of per unit of Localcurrency.

Quotation Methods


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Exchange rate movements

USD/INR

47.00

47.50

This would mean that US dollar has appreciated against the rupee andthat Rupee has depreciated against the dollar

E.g. - USD/INR current rate 47.00


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Exchange rate movements

This would mean that Euro has appreciated against the dollar and thatdollar has depreciated against the Euro

E.g. EUR/USD current rate 1.4700

EUR/USD

1.4700

1.4800


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Concept of Value dates

Day Terminology

0 Cash

0+1 Tom

0+2 Spot

>2 Forward


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Concept of Value dates Cash: Cash rate or the ready rate is the rate when the exchange of currencies takes

place on the same day. In this case the delivery of the currencies is on the date of thedeal itself.

Tom: When the exchange of currencies takes place on the next working day i.e.tomorrow, the rate is called as tom rate and the Value date in this case is tomorrow orthe next working day.

Spot: In a spot transaction the exchange of currencies takes place on after twoworking days from the date of the deal. The interbank rates quoted by banks are forthe value spot

Example: The spot date in case of Dollar/Rupee for Monday is Wednesday i.e. a dealdone on Monday is settled on Wednesday and the spot date for Friday is Tuesday. Incase of a holiday in USA, the spot date is the next working day.

Forward: Forward Contract are contracts to purchase or sell currencies at a futurespecified date (beyond spot), at a rate negotiated at the time of entering the contract.


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Forex Terminologies

Concept of Cross Rates

The Indian rupee is directly quoted only to the US dollar

Now-a-days, it is also quoted directly against Euro

The exchange rate between the rupee and any third currency is a derivedrate

It is a function of the dollar rupee rate and the exchange rate between the

dollar and the third currency


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Cross Rate Calculation

1 = Rs 69.09

EUR/INR

1 = $1.4700

EUR/USD

$1 = Rs 47.00

USD/INR

x

=

E.g. - 1


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Cross Rate Calculation

CHF 1 = Rs 46.07

CHF/INR

$1= CHF 1. 0200

USD/CHF

$1 = Rs 47.00

USD/INR

=

E.g. - 2


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Forex Terminologies

Bid /Ask

Mine / Yours

Pips

Big Figures

Bps

Spot Price

Premiums / Discounts

Long / Short

Stop Loss / Take Profit


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Forex Terminologies

Pips / Big Figures

EUR/USD 1.4700/ 05

Here last two digits are considered as pips.

For example:If Euro moves from 1.4700 to 1.4705, it is considered as euro hasappreciated by 5 pips against USD

The third digit is considered as big figure

For example:If Euro moves from 1.4700 to 1.4800, then it is said that euro has

appreciated by 1 big figure against USD

Bi

gFi

gu

re

Pi

ps


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Hedging

Participants in Foreign Exchange markets are exposed to adverse currencymovements. Hence the need for hedging arises.

What is hedging?

Hedging is the process of mitigating risks pertaining to movement ofcurrency rates in the adverse direction.


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Hedging Tools

Forwards

A contract to buy or sell currencies at a future specific date (beyond spot), at a ratenegotiated at the time of entering into the contract.

Futures

A currency future, also FX future or foreign exchange future, is a futures contract

to exchange one currency for another at a specified date in the future at a price(exchange rate) that is fixed on the purchase date. Typically, one of the currenciesis the US Dollar and the other is INR.

Options

A contract which provides to the buyer rightbut not the obligation, to buy or sell

a specific asset at a specific price, on or before any time prior to the specific date.


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Do not reflect interest rate differential

Based on demand and supply and expectation of direction of spot

USD/INR.

Forward premiums are quoted on a month end basis (i.e. end August,

end September etc)

Forward market is active for 1 year. Forward beyond a year are available

through the derivative market (LTFX).

Forwards in Indian markets


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Reflection of the interest rate differentials between countries.

Not a forecast of what the future spot rate.

Forward premiums/ discounts are quoted on a monthly basis

(i.e. 1 month, 2 month, 3 month)

Concept of Premium/Discount

Forwards in International Market

Currency Forwards of the Currency

Lower Interest Rate Premium

Higher Interest Rate Discount


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Spot Premium/Discount+/- Forward Rate=

Forward rate Calculation


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Types of Forwards

Fixed Date Forward

Broken Date Forward

Option Period Forward


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Calculating Forwards for Fixed Date

Spot USD/INR : 47.0000 / 47.0500

To book a forward contract for an import transaction in USD/INR value31th Dec, 2009

Fwd premium for End Dec (in paisa): 20.00 / 25.00Rate is 47.0500 + 0.2500 =47.3000

To book a forward contract for an exporter in USD/INR value 31thDec,2009

Fwd premium for End Dec (in paisa) 20.00 / 25.00Rate is 47.0000 + 0.2000 =47.2000

Calculating Forward Rates for


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Calculating Forward Rates forBroken Date

Forward premium/discount for any date falling between the quoted datesare calculated by simple interpolation

For example:

To book an Export contract for 15th Jan, 2010

Premium for End Dec 09 : 20.00 paisa Premium for End Jan 10 : 30.00 paisa

Premium for 15thJan 10 : (30.00-20.00)*15/31)+ 20.00 = 24.83 paisa

Forward Rate(15thJan 10)= 47.0000+0.2483 = 47.2483

Calculating Forwards for Option


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Calculating Forwards for OptionPeriod Contracts

Spot USD/INR 47.00 / 47.05

For Import transaction in USD/INR value 1stto 31stJan, 2010

Fwd premium till 31st Dec 09 (in paisa) 20.00 /25.00

Fwd premium till 31st Jan 10 (in paisa) 30.00/35.00

Rate is 47.0500 + 0.3500 = 47.4000

For Export transaction in USD/INR value 1stto 31stJan, 2010

Fwd premium till 31st Dec 09 (in paisa) 20.00 /25.00

Fwd premium till 31st Jan 10 (in paisa) 30.00/35.00

Rate is 47.0000 + 0.2000 = 47.2000


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Cross Currency Forward

To book a Euro Forward for export value 31st

Dec, 2009 (EUR/USD is atdiscount)

Spot: USD/INR 47.00 / 47.05 EUR/USD 1.4700 / 1.4705

Fwd (in paisa): 20.00 / 25.00 Fwd (in pips): -5 / -4

= (47.00 + 0.20) x (1.4700 - 0.0005)

= 47.20 x 1.4695

EUR/INR = 69.36


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Cross Currency Forward

To book a JPY Forward for export value 31st Dec, 2009 (USD/JPY is atdiscount)

Spot: USD/INR 47.00 / 47.05 USD/JPY 90.00 / 90.05

Fwd (in paisa): 20.00 / 25.00 Fwd (in pips): -5 / -4

= (47.00 + 0.20) / (90.05 0.04)

= 47.20 / 90.01

JPY/INR = 0.5243


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Calculating Annualized Forward

Spot47.00

12 MONTH 6 MONTH

135p 70pSpot : 47.00

Fwd (paise ): 1.35

12 month annualised:

(1.35/47.00) x (12/12) x100= 2.87 %

Spot : 47.00

Fwd (in paise ): 70.00

6 month annualised:

(0.7000/47.00) x (12/6) x100

= 2.97 %

Spot

47.00

Spot

2.87%

2.97%


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Utilisation

This is the situation envisaged when the forward contract was entered into. Whenthe foreign exchange delivered on the due date, the rate applied for the transactionwould be the rate originally agreed.

Early DeliveryWhen a customer requests early delivery of a forward contract, the bank may accedeto the request provided the customer agrees to bear the loss, if any, that may accrueto the bank.

Extension Extension on Due Date

An importer finds that he is not able to import on the due date but expects to do soin about two months. Importer can approach to its bank with which it has entered

the contract to postpone the due date of the contract. When a forward contract issought be extended, it shall be cancelled and rebooked for the new delivery periodat the prevailing exchange rate.

Execution of Forward Contracts


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Early Extension

When the forward contract is extended earlier than the due date, it would becancelled at the relevant forward rate and rebooked again at the current rate.

Cancellation

Cancellation on Due Date

When a forward purchase contract is cancelled on due date, it is taken that the bankpurchases at the rate originally agreed and sells the same back to customer at theready rate. The difference between these two rates is recovered from/paid to thecustomer.

Early Cancellation

If a forward sale contract is cancelled earlier than the due date, the cancellationwould be done at the forward purchase rate prevailing on that date with the duedate to fall on date of the original forward sale contract.

Execution of Forward Contracts


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Analysis of Forex Market

Fundamental Analysis

Technical Analysis

F d l A l i


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Fundamental Analysis

Fundamental Analysis is a method of evaluating a currency byattempting to measure its intrinsic value by examining relatedeconomic, financial and other qualitative and quantitativefactors.

Fundamental analysis is performed on real time data, but withthe goal of making financial forecasts.


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Why do exchange rate move?

Change inGovt

Terrorattacks

GDP

InflationCrude oil prices

FIIFDI

Relaxation in ECB norms

Increase/decrease in CRR,Repo Rate, etc.

Weakening ofThai BahtCollapse ofKorean Won


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Technical Analysis

Technical analysis is analysis technique that claims theability to forecast the future direction of prices throughthe study of past market data, primarily price andvolume.

Three principles:

Market action discounts everything

Prices move in trends

History repeats itself

Bullish Candle & Bearish Candle


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Bullish Candle & Bearish Candle

Patterns


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Patterns

Reversal Pattern

The inverse Head and Shoulders

Triple Tops and Bottoms

Double Tops and Bottoms

Continuation Pattern

Triangles

Flags and Pennants

The Wedge formation

The Continuation Head and Shoulders Pattern

D bl T


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Double Top

Major Candlestick Pattern-


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jHammer

Major Candlestick Pattern-


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Shooting Star

Contract Specifications


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Contract Specifications

Underlying USD-INR, EUR-INR, GBP-INR and JPY-INR

Size of the Contract 1000 USD, 1000 EUR, 1000 GBP and 100000 JPY

Contract Months All monthly maturities for 12 months

Tenure of the contract Maximum maturity of 12 months

Trading hours 9.00 a.m. to 5.00 p.m. (Monday to Friday)

Price quotation INR per 1 USD, INR per 1 EUR, INR per 1 GBP, INR per 100 JPY

Initial margin As determined by the exchange from time to time using VaR based marginingsystem with approximate 5% from the first day of currency futures trading andthereafter MTM margin as per the closing price.

Trading Platforms NSE and MCX

Settlement mechanism The currency futures contract shall be settled in cash in Indian Rupee

Settlement price RBI's Reference Rate

Final settlement day The currency futures contract would expire on the last working day (excludingSaturdays) of the month.


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Working of Currency Futures

Currency futures are traded on MCX & NSE exchanges.

Currently the currency pairs traded are USD/INR, EUR/INR, GBP/INRand JPY/INR

They are quoted month end as per the OTC market.

They are non deliverable and settled in cash.

Derivation of futures price= Spot + premium (specific month)

The trade entered in currency futures can be: Squared off before due date - On Exchange driven rate Squared off on due date (Automatic route) - RBI Reference Rate


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Pros of Currency Futures (Contd)

Convenience of operations as compared to OTC market

Mark to market profit is realized on the same day unlike the OTC marketwhere it is realized on maturity

No distinction between large and small customers or amounts

One time documentation (No documents to be provided at time ofbooking)

C f C F


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Cons of Currency Futures

Margin based Hedge

Maturity Mismatch - Resulting to Basis Risk

Negative cash flow due to out of the money MTM

Settlement in cash on Maturity

Less Liquidity for far month contracts


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Futures v/s Forwards

Parameter OTC Market Exchange Traded Futures

Accessibility Low High

Spread Variable Narrow

Documentation Recurring One time

Underlying Exposure Required Not Required

/ d


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Futures v/s Forwards

Parameter OTC Market Exchange Traded Futures

Agreements Customized Standardized

Settlement Physical Delivery/Netsettled

Net Settled in INR


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Position Limits: Client Level

USD/INR (i) 6% of the USDtotal open interest

(ii) 10 mio (i) OR (ii) Whichever ishigher

GBP/INR (i) 6% of the GBPtotal open interest

(ii) 5 mio (i) OR (ii) Whichever ishigher

Taking a View on Spot INR


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Taking a View on Spot INR

USD/INR 31stJan Contract : 47.30

Current Spot Rate (4thDec09) : 47.00/47.05View : INR to depreciatePosition in Futures : Buy USD/INR future contract

Position at maturity (27thJan10) : 47.80

Profit / Loss : Profit Rs. 500 on 1 contract= (47.80-47.30)*1000

A currency future contract is similar to a futures contract on any

Scrip or Index

A bit


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Arbitrage is the practice of taking advantage of a price differential

between two or more markets.

It is a balancing operation that does not allow the same currency tohave varying rates in different forex markets

Arbitrage opportunities for USD/INR are available

Between Forwards & Futures.

Between Forwards and Non Deliverable Forward (NDF) market.

Arbitrage

Arbitrage Opportunity


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Sell in futures @ 44.4625 levels (1 month)

Buy in forward @ 44.3250 + 3 paisa premium = 44.3550 (1 month)

Net Gain = 44.4625-44.3550 = 0.1075

i.e. Approx 11 Paisa arbitrage

On account of inefficient market pricing



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Sell in futures @ 44.4625 levels (1 month)

Buy in forward @ 44.3250 + 3 paisa premium = 44.3550 (1 month)

Net Gain = 44.4625-44.3550 = 0.1075

i.e. Approx 11 Paisa arbitrage

On account of inefficient market pricing

Between Forwards & NDF market


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Between Forwards & NDF market

Deal Date 17-Mar-09 Maturity

Date

15-Apr-09

Spot Date 19-Mar-09 SettlementDate

19-Apr-09

Onshore Offshore

Bid Ask Bid Ask

Spot 51.2700 51.2800 Spot 51.2700 51.2800

Forwards Bid Ask Forwards Bid Ask

Mar-09 0.08 0.10 1M 51.75 51.66

Apr-09 0.24 0.25 2M 51.90 51.91

May-09 0.40 0.41 3M 52.05 52.06

Arbitrage gain @ Initiation : Re. 0.32 (51.75-51.43)

Examples


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Examples

Scenario I USD/INR is lower on maturity

Onshore Buy @ 51.43 Sell @50.90 (Re. 0.53)

Offshore Sell @ 51.75 Buy @50.90 (Re. 0.85)

Profit @ Singapore (Re. 0.32)

Scenario II USD/INR is higher on maturity

Onshore Buy @ 51.43 Sell @52.20 (Re 0.77)

Offshore Sell @ 51.75 Buy @52.20 (Re 0.45)

Profit @ India (Re. 0.32)

Scenario III


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Scenario III

Unwinding of trade before maturity

Deal Date 17-Mar-09 Spot Date 19-Mar-09

Maturity Date 15-Apr-09

Settlement Date 19-Apr-09

Unwinding Date 23-Mar-09

Onshore Buy @ 51.43 Sell @ 51.20 (0.23 )

Offshore Sell @ 51.75 Buy @ 51.30 (0.45)

Corporate will earn profit to the extent of gap i.e 22 paisa

Benefit of unwinding before maturity is to provide an opportunity tocapture the gap and release margin money in short span of time

Advantages & Disadvantagesof Arbitrage


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Advantages

Provides Risk Free Arbitrage (Unauthorised by RBI)Hedging Avenue for FIIs

Hedging Avenue for corporate

Disadvantages

Tax Implications

Cost of funds (Eg: Margin)

Operational inefficiency

of Arbitrage

Introduction To Derivatives


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In simple terms, Derivatives are deferred settlementcontracts which derive their value from theunderlying.

As per Securities Contracts (Regulations) Act, a

Derivative includes:- a security derived from a debt instrument, share,loan, whether secured or unsecured, risk instrument orcontract for differences or any other form of security;

- a contract which derives its value from the prices, orindex of prices, of underlying securities.

Derivatives in Indian Context


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DERIVATIVES

OPTIONSSWAPS

FRA OISIRS

POS

COS

InterestSwaps

CurrencySwaps

CS

Options


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A contract which provides the buyer right but not theobligation, to buy or sell a specific asset at a specific price, on orbefore any time prior to the specific date.

Option Terminologies


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Call Option: A call option gives the buyer the right to buy the underlying asset at a

predetermined price. If the buyer of the call exercises his right, i.e., hedecides to buy the underlying asset, then the seller of the call, viz, the bankshas to oblige, i.e., it has to sell the underlying asset

Put Option: A put option gives the buyer the right to sell the underlying asset at a

predetermined price. If the buyer of the put option exercises his right, i.e., hedecides to sell the underlying asset, then the seller of the put, viz, the bankhas to oblige, i.e., it has to buy the underlying asset

Options Terminologies


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Buy Sell

Rightto buy

Obligationto buy

Put OptionCall Option

BuySell

Obligationto sell

Rightto sell



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p g

Strike Price: It is that pre-determined price at which buyer has right to buy (in

case of call option) or sell (in case of put option)

Premium: The price to be paid by the buyer of the option to acquire the right iscalled option premium. Option premium is payable upfront.

Plain Vanilla Option: An option where the buyer of the option pays the optionpremium upfront in exchange for a right to do something on a specified futuredate is called a plain vanilla option

Zero Cost Option: A packaged structure made of up two or more options,

where there is no net inflow or outflow of premium



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European Option:

This option could be exercised only on the due date of the contract

American Option:

This option could be exercised at any time on or before the due dateof the contract

In India, only European options are allowed by RBI

Moneyness of an Option


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Call Put

ITM

ATM

OTM

Underlying currency priceis greater than strike price

Underlying currency priceis less than strike price

Underlying currency priceis equal to or near strikeprice

Underlying currency priceis equal to or near strikeprice

Underlying currency priceis less than strike price

Underlying currency priceis greater than strike price

Forwards vis--vis Options


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In case of export forward:

Spot: 51.27 6m Fwd: 51.87 If rupee depreciates to 52.80, the exporter is locked at 51.87

In case of Plain vanilla PUT option:

Strike price for 6m: 51.90 Option Premium: 50 paisa

If rupee depreciates to 52.80, exporter can sell USD at then prevailing spot rate

Even, if rupee appreciates to 48.00, exporter can sell USD at the strike price i.e. 51.90better than the forward rate

Forwards vis--vis Options


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If the intention is just to fix a rate for the future, a simple forward would

suffice

If the company is willing to pay a premium to insure against adversemovement only, purchase of an option is the solution. This would leavefavorable movements in rate untouched

The view of the market will form the basic rationale behind the structure to

use

Options Vs. Forwards


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Contractual Obligation

Premiums to be

paid/received on maturity

Plain vanilla contracts

Opportunity loss

Choice of Utilisation

Upfront Premiums to be

paid and received

Customized contracts

possible

Best of both worlds

Forward Option

USD INR Option Structures


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Plain Vanilla Option

Zero Cost Range Forward Option

Plain Vanilla Structure


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It is an option structure wherein the writer of the option is obliged to buy / sell

USD at a pre-specified rate, while the buyer of the option has a right to exercise theoption on the writer.

Example: Buy USD Call INR Put @ 52.00. Sell USD Put INR Call @ 52.00

Zero cost Range Forward Structures


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Rationale: Avoidance of upfront premium payment.

Corporate

To offset the premium paid

Right to Sell

Buys USD 1 mio Put @51.00 Premium paid. $ 14,000

Corporate

Obligation to Sell

Sells USD 1 mio Call @ 54.80 Premium recd. $ 14,000


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Forex Risk Management Process


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Recognition

Benchmarking

Boundary Setting

Control & Reporting

Recognition


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Recognizing Risk is the starting point of the risk managementexercise.

It involves answeringthe question like.. When does the riskcomes into existence.

Success of Risk management depends on Recognition of Risk &

timing of the recognition


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Benchmarking


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Evaluation Yardstick for treasury performance

Why benchmarking?

Rationale for decision making

Methods of benchmarking Invoicing / Costing rate.

First Day Forward Rate (FDFR)

Budgeting Rate

Boundary Setting


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Defining Risk Appetite.

Core Cover

How much exposure you must always cover.

Helps in absorbing shocks

Methods:

Number of day exposure

Percentage of exposures

- Transaction specific

- Overall basis

Boundary Setting- Stop Loss


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To protect open positions from the possibility of the view on marketvariables going wrong

Helps to cut short losses instead of running the positions and entailingdeeper losses

Methods:

Percentage of Benchmark

Absolute Paisa Terms over benchmark

Take Profit


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Take profit level would ensure that the gains are booked at appropriateintervals and levels

Monetary cap to the greed levels

Control & Reporting


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Control

Set up of the Risk Management Committee for.

Review exposure statements. Review Stop Loss levels and Take Profit Levels. Review Core Cover strategy.

Authorize new instruments/products to be used for hedging/trading. Define the levels for above which specific authorizations would be

mandatory

Reporting

The RMC will report on treasury performance to the Chairman of theBoard


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THANK YOU !!

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