User:Ankittsharma

Concept of Money Market Hedge in case of Export of goods

First of all we should understand what does Hedge means. Hedge simply means safeguarding us from the risk which might have occur to us in future if reasonable steps regarding the same are not taken.

Now when we come to the concept of Money Market Hedge in case of exports of goods outside india, it means today we have made a sale outside india and that too in currency other than INR. As the risk of losses arises only when amount is receivable in currency other than INR.

when we say risk of losses it means that the person selling goods is feared about the strengthening of INR in respect of the foreign currency. The person is feared because if INR gets strengthened that he received less amount of INR after conversion of foreign currency in future as compared to today and that is why the need for hedging come to play.

The following are steps for the same :

1. Firstly we should calculate the present value of amount receivable in foreign currency  in future and borrow the same from foreign bank/ market. 2. Now we get's this currency converted into INR and deposit the same in our indian bank account. 3. Now we calculate the value of the amount deposit in our bank account of the future date on which amount is due to be received from foreigner. 4. Now we compare the amount calculated at 3rd step with the amount which may be receivable by us on future date by converting the same in INR. 5. If amount at 3rd step is higher than the amount which might be receivable at future date then we go for this hedging technique otherwise not.