Saturday, January 15, 2011

RBI ISSUES FINAL GUIDELINES FOR OVER-THE-COUNTER FOREX DERIVATIVES

The Reserve Bank of India (RBI) has issued final guidelines on over-the-counter foreign exchange
derivatives and overseas hedging of commodity and freight prices. It includes:

  • Allowing the use of cost-reduction structures and embedded cross-currency options for foreign currency-rupee swaps for companies having net worth of Rs. 100 crore to enter such contracts.
  • The maturity of the hedge by the companies must not exceed the maturity of the underlying.
  • In case of trade transactions being the underlying, the tenor of the structure shall not exceed two years. Banks must periodically inform companies about the mark-to-market position of the contract.
  • The Companies could enter into buy and sell positions simultaneously for plain vanilla options.
The new norms will be effective from February 1.

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