Saturday, October 15, 2011

DOLLAR LOANS - INCREASED EFFECTIVE COST

Companies with 'dollarized' balance sheets will pay the biggest price with the rupee crashing against the US currency. Attracted by low interest rates in overseas money markets, many Indian companies have either borrowed in dollar or converted rupee debt into dollar by striking deals, known as 'principal only swaps' in the currency market, with banks. Such deals, kept unhedged or exposed to currency fluctuations, can dramatically lower interest outgo on loans. But interest costs jump when the dollar strengthens. The rupee ended at 49.58. Dollar has fallen about 10% in three months.

0 comments:

Post a comment