Present situation of Indian FOREX exchange…?
- All of us are aware of the fact that our country is staring at an economic crisis at this point of time. With depreciation, inflation and the GDP factor on the lips of everyone we are at a stage of economic collapse. In the modern day the whole world has set their eyes on the GDP growth of our country which is the lowest in a decade.
- India in the present day is well integrated with the world economy, and is in line with the currency along with economic developments. The changes that have been witnessed in the Indian economy since the era of liberalization since the period of 1990’s has had deep rotted impacts on the financial sector of the country.
- With relaxation in terms of trade barriers, most of the business houses have gone on to approach the banks with their products and in the process source capital along with direct investment opportunities. In India the need of the hour has been to introduce financial derivatives that will enable hedging, in relation to the risks of the market in an effective manner.
- The periods of exchange rate stability have sowed the seeds in terms of complacency. Most importers were confident that the RBI, would go on to intervene any form of decline in rupee value whereas it was felt that the rupee was always overrated and in no way the value of it could decline. This to a large extend prevented the companies from hedging of their exposures.
- There is a scenario of corporate reluctance, consideration of hedging along with lack of technology along with information, companies who adopted the stance of hedging have opted the conservative manner of hedging their exposures. Going forward all the companies have given importance to the concept of currency management in the coming days. The key is how many of the companies are working toward building capacity to deal with the changing situation. But still many of the firms are willing to keep their risk exposures as un hedged as they work on forward contracts as cost centres. The problem that arises is that in the Indian market for derivatives the manner of forward contracts is pretty shallow. In some ways financial derivatives have been allowed in the market, to deal with exposure that arises due to increased form of business activity in the external sector.
- The way ahead in the current stage in terms of development of the foreign exchange market, a closer look needs to be taken by the steps that have been formulated by the corporate hubs. Some of the recommendations which will take the foreign currency market ahead are as follows
- Informed hedging decisions is the need of the hour– the corporates need to take a closer look at their risk exposure and worthwhile decisions on hedging needs to be taken. This decision needs to be backed by relevant professionals at the same time
- Introduction and use of the new products– the corporations should always be on the lookout for new derivatives, which are cost effective and flexible at the same time. Most of the synthetic products on offer have their value determined by the value of a physical underlying product.