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.