ANNEX I Comprehensive Guidelines on Foreign Exchange Derivatives and Hedging Commodity Price Risk and Freight Risk Overseas Given below is a description of the categories of persons who are permitted to access the OTC foreign exchange market in India for managing exchange rate risks as also the menu of permitted products that can be used for hedging different categories of exchange rate exposures. Additionally, the facilities for residents to hedge commodity price risk and freight risk overseas is described under para D and E below. A) Persons resident in India (other than AD Category-I banks) 1) Contracted Exposures – The following products are permitted to be used: • • • • Forward Foreign Exchange Contracts Cross Currency Options (not involving the Rupee) Foreign Currency-INR Options Foreign Currency-INR Swaps
2) Probable Exposures based on past performance - The following products are permitted to be used: • • • Forward Foreign Exchange Contracts Cross Currency Options (not involving the Rupee) Foreign Currency-INR Options
3) Special Dispensation – The following categories are permitted special dispensation: • Small and Medium Enterprises (SMEs) 1 - Permitted to book forward foreign exchange contracts without production of underlying
documents for hedging their direct /indirect exposure to foreign exchange risk. o • Product : Forward Foreign Exchange Contracts
Resident Individuals - To manage / hedge their foreign exchange exposures arising out of actual or anticipated remittances, both inward and outward, without production of underlying documents, up to a limit of USD 100,000, based on self declaration.
SME as defined by the Rural Planning and Credit Department, Reserve Bank of India vide circular RPCD.PLNS. BC.No.63/06.02.31/2006-07 dated April 4, 2007.
Product : Forward Foreign Exchange Contracts
B) Persons Resident outside India – The following categories are permitted to hedge their contracted foreign exchange exposures: • • • Foreign Institutional Investors (FIIs) Persons having Foreign Direct Investment in India Non-resident Indians (NRIs)
For these categories, subject to terms and conditions enumerated later, the following products are permitted: • • Forward Foreign Exchange Contracts Foreign Currency-INR Options
C) Authorised Dealers Category - I (AD Category-I)– Hedging can be undertaken for the following purposes: • • • Management of Assets and Liabilities Hedging of Gold Price Risk Hedging of currency risk on Capital
The products and terms and conditions for each of the purposes are enumerated later. D) Commodity Derivatives Residents are permitted to use OTC and exchange-traded commodity derivatives in international markets for hedging their exposures to commodity price risk subject to conditions specified under the relevant para. Applications for commodity hedging by companies/ firms, which are not covered by the delegated authority of AD Category I banks, may be forwarded to the Reserve Bank through the AD Category I bank for permission. E) Freight Derivatives Domestic oil refining companies and shipping companies are permitted to use OTC and exchange-traded freight derivatives in international markets for hedging their exposures to freight risk, subject to conditions specified under the relevant para. Other companies exposed to freight risk can seek prior permission from the Reserve Bank through their AD Category I banks.
F) Reports AD Category I banks are required to submit reports on derivative products, as per the details given in this section.
A) Facilities for Persons Resident in India – Other than Authorised Dealers Category – I The facilities for persons resident in India (other than AD Cat I bank) are elaborated under paragraphs A I and A II. Paragraph A I describes the facilities and operational guidelines for the respective facility. In addition to the operational guidelines under A I, the general instructions that are applicable across...
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