Foreign Exchange Rate - A future outlook – Management Strategy

The Foreign Exchange Rate of Rupee viz a viz US Dollar has appreciated about 14% during last 12 months. Indian currency has appreciated against all major currencies of the world except in case of Euro. The US economy is facing sub-prime crises and may only rebound in 6 to 9 months. Fed interest rate cut of 0.75% by US in recent months will facilitate consolidation of US economy. The growth of Indian economy, increase in the flow of investment in real estate, stock market and infrastructure have led to a stronger rupee and larger foreign exchange reserve. The Indian rupee is expected to further strengthen to Rs. 35 to 1 US Dollar in next 12 months. Exporters, BPO companies, Information Technology companies are facing stiff competition and pressure of margin. The invoicing in Indian rupee, broad basing of exports, technological innovation, cost reduction and moving up the value chain are to be strategised. Indian exporters need to plan international corporate structure and set ups for better business opportunities, higher margins and tax planning. Imports are becoming cheaper and have an impact of reducing inflation and a negative pressure on balance of trade. Foreign Debt Servicing is becoming cheaper and easier. The Chartered Accountants, as treasury managers need to have a clear risk management policy and may partly cover the risk through forward and derivative products. Their professional acumen and expertise can bring revenue and cost saving. RBI is pushing for exchange traded hedging products for foreign exchange risk. The profession needs to gear up in knowledge and technology to meet the new challenges. The government need not feel nervous on higher inflow and utilize forex reserves for government debt restructuring, investment in growth and development plans with adequate cover for exchange fluctuation risk.