Newspaper reports of parents praying in the Chilkur Balaji temple for the rupee to gain against the dollar, so that funding of their children's education becomes more affordable, set me thinking. For many such parents, it is probable that the kid's elder siblings are employed abroad and the student's education is being funded by these elder's remittances from abroad. Little would the worried parents offering the prayers, realised that their elder kid's remittances are fetching more rupees simultaneously, when their focus is on present educational expenses. Similar sentiments are expressed by many manufacturers that the rupee should fall when they are invoicing their exports, and the currency should gain against the dollar when their import consignment is being cleared from the bank. Unfortunately, currency markets don't exhibit such customer-specific benevolent swings.
SUITOR'S PRAYER
My thoughts also recalled the following anecdote in Hindu mythology, signifying the need for proper orientation of thoughts while seeking God's benevolence. Narada and his accomplice Parvatar once reach the palace of King Ambareesh, chance to glance at King Ambareesh's daughter, and fall for her bewitching beauty. Narada makes use of the first opportunity with King Ambareesh to express his desire to marry the princess.
Parvatar stakes his claim as the better eligible bachelor. King Ambareesh, known for his righteous approach, declares that as both of them have expressed their desire to marry his daughter, he would leave the choice to his daughter, through a
On the day of
SIMPLE LOGIC
Let the ones exposed to a currency risk not pray for profits from such risks. Let them find comfort in hedging the risk and not lose sleep thinking of this risk. In the context of recent curbs on booking, cancelling and rebooking forward contracts, currency options are likely to be more sought-after. Let the customer be prepared to pay the premium to hedge the risk, than look at structuring products that aim to recover the cost, in the process, opening up higher risks, many of which he may be ignorant of, at this point of time. Let the core activity be the money spinner, and let us be open to utilise currency hedging tools to crystallise the costs and leave margins protected. When one is used to hedging his currency risk, his resources are available to focus on other areas of entrepreneurial importance.
I am reminded of the simple logic of a jewellery merchant, who always replenished his daily sales of gold on that day itself at current prices, thereby ensuring consistent and sustaining margins, and removing all apprehensions of commodity price impacts. Once comfortable in running hedged positions, let us acknowledge the role of market intermediaries in providing the tools and paying them for the services.
(The author is Head - Treasury, Dhanlaxmi Bank.)