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  #1  
Old 05-22-2012, 09:02 AM
georgy11 georgy11 is offline
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Default Hedging Against Forex Fluctuation

Hi all, hope some of you finance whizzes can give me some helpful ideas on the below

So we have a small shipping company in south India (small as far as shipping cos go). One of our ventures is a ferry business, to ferry container trucks over a short distance that reduces the transit time over road to significant extent.

We have one ferry that transports these trucks, this particular ferry was hired on bareboat charter at around US$1000/day. Now the hire has to be paid in USD as is standard in shipping and the owner of the vessel is not an Indian company so we have to stick to USD. But our collections are of course in Indian rupees from the trucking cos.

As you may have heard the INR has been hammered over the last few months and has meant abt a 20% increase in hire cost which is our largest cost in this venture. INR is slated to increase even further in the short run and my contract with the owners of the ferry is for 3 more years. I need to find a way to hedge against this currency fluctuation or suffer.

Any suggestions will be helpful, there has to be sort of a creative way to do this.

Thanks guys, help appreciated
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Old 05-22-2012, 03:09 PM
ArcSine ArcSine is offline
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Default Re: Hedging Against Forex Fluctuation

The first choice---the so-called 'natural' hedge---would be to arrange for an appropriate portion (or close to it) of your revenues to be paid to you in USD rather than rupees.

I mention it for the sake of completeness, but your post implies that maybe this isn't do-able. If not, then the popular Plan B is to buy your USD 'forward'. That is, you enter into forward/futures contract(s) to purchase specified quantities of US dollars on specified future dates, at rupee amounts which are specified with the contract.

This locks in today the rate at which you'll be swapping rupees for dollars on those future dates, thereby eliminating the uncertainty. You know today exactly how many rupees those dollars will cost, and this pre-arranged rate is unaffected by any subsequent weakening of the rupee against the dollar. The downside, of course, is that should the rupee appreciate against the dollar vs. the locked-in forward rate, you'll have forfeited being able to ride that gain.

But operating companies running businesses such as yours value certainty over FX speculation, so currency futures/forwards tend to be a go-to Plan B when natural hedging isn't on the menu.

Check in with your banker first; he/she can either hook you up with an in-house FX dept, or with another large bank with an FX operation.
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Old 05-25-2012, 01:30 AM
georgy11 georgy11 is offline
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Default Re: Hedging Against Forex Fluctuation

Arcsine, thank you very much...currently discussing with bankers on how to enter into a futures contract, really appreciate the help.
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Old 03-03-2017, 12:06 AM
grayline grayline is offline
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Default Re: Hedging Against Forex Fluctuation

I just stumbled on this forum and I saw your description. How did you do managing your foreign currency risk? What have you done since then?
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Old 03-23-2019, 11:39 PM
John Tollerman John Tollerman is offline
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Default Re: Hedging Against Forex Fluctuation

I believe we need to be extremely wise and careful when it comes to the way we go about working. I never like hedging at all, I prefer simple and straightforward strategy. It’s the way I am able to generate good money and that with rather ease and comfort too. I also feel nice with FreshForex, as they are very special having lowest possible spreads, fast execution of trades and lovable 101% Tradable Deposit Bonus.
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