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Forward Contracts - RBI Guidelines

Forward Contracts - RBI Guidelines. What is a Forward Contract? It is an agreement to buy or sell a specified quantity of an asset at a certain future date for a certain price agreed upon now. Contracted Exposures -

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Forward Contracts - RBI Guidelines

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  1. Forward Contracts -RBI Guidelines Ashit Hegde

  2. What is a Forward Contract? It is an agreement to buy or sell a specified quantity of an asset at a certain future date for a certain price agreed upon now. Ashit Hegde

  3. Contracted Exposures - These may be hedged subject to documentary evidence and quarterly CA certificate. These contracts maybe freely cancelled and re-booked. II. Probable exposures based on past performance - • For Exporters - The eligible limit will be, Average of past 3 years Exports OR Previous year’s Actual Exports. - Whichever is higher. Cancellation - Up to 75 percent Ashit Hegde

  4. For Importers : 50 percent of the average of the previous 3 years imports, OR 50 percent of the previous years imports Whichever is higher. (w.e.f May 27th, 2014) Cancellation - Up to 75 percent III. Resident Individuals, Firms and Companies - USD 250,000/- on self declaration basis. Normally, these contracts will be on deliverable basis and cannot be cancelled Ashit Hegde

  5. Provisioning Requirement for Exposures to entities having Unhedged Foreign Currency Exposure (UFCE) (RBI Circular dt Jan 15,2014 effective from 1st April 2014) Read with Circular dt June 3rd, 2014 Ashit Hegde

  6. Computation Methodology : • Ascertain Gross Sum of all items on the balance sheet that have impact on P/L ac due to Movement in Exchange Rates. This will be Foreign Currency Exposure (FCE) • Exclude all hedged exposures (Financial Hedge and Natural Hedge) E.g. Of Natural Hedge - Export Revenues Vs. Repayment of ECB. (within same year) • Estimate the likely loss based on largest annual volatility seen in USD – INR during last ten years. Volatility figure will be provided by FEDAI. 4. Compute this loss as a percentage of EBID. Ashit Hegde

  7. Additional Provision Needed - • Up to 15 percent - NIL • More than 15 to 30 pc - 20 bps • More than 30 pc to 50 pc - 40 bps • More than 50 pc up to 75 pc - 60 bps • More than 75 pc - 80 bps Risk Weight – For 75 pc and above - 25 % increase in Risk Weight Ashit Hegde

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