With rupee getting stronger, for a company which is 100% EOU, hedging is the best option. Can anyone provide me the details of hedging?
From India , Delhi
The word 'hedge' means a way of protecting, controlling or limiting something. In todays economy by knowingly or unknowingly we are going thru an hedging process. If you buy a car, you will take an insurance on that in order to limit or minimise the financial loss you may face in future course of time.

In financial terms hedging is very complicated term and if you do not have proper financial strategy you may face huge loss or vice versa. Hedging against investment risk means strategically using instruments in the market to offset the risk of any adverse price movements. In other words, investors hedge one investment by making another. The core problem when deciding upon a hedging policy is to strike a balance between uncertainty and the risk of opportunity loss. It is in the establishment of balance that we must consider the risk aversion, the preferences, of the shareholders. Make no mistake about it. Setting hedging policy is a strategic decision, the success or failure of which can make or break a firm.

Company like yours "Export Oriented Units" are the mainly affected companies with the changes in forex rate variation. I suggest this is the best time to do the hedging as the rupee is stronger. Please note that the phenomina of getting rupee stronger is a short term only and will not last longer in a politically influenced market like India.

Please read "Interest Rate Swap" topic also for further understanding.

From United Arab Emirates , Dubai

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