IOB Ppt _ Karthiga. D

1 USD = ?

A STUDY ON FOREIGN EXCHANGE RISK

MANAGEMENT TECHNIQUES OF THE CUSTOMERS

Under the guidance of Dr. B. CHARUMATHI,

Reader & Faculty Advisor Corporate Relations and

Placements

Indian Overseas Bank

• Founded on 10th February 1937

• In 1969 - the bank was nationalized

• Now - 1845 domestic branches and

12 branches overseas.

IOB - Pondicherry

• Commenced in the year 1948• Till 1992, the bank was 100%

manually operated• 1993 partial automation and 1995 full

automation.• 2005, they have implemented

networking• September 2009, this branch was

allowed direct SWIFT connectivity.

• To understand the Risk Management Techniques

• To understand the risk involved in the Forward

contracts

• To analyze the trend of the NRI deposits at the Bank

• To identify the problems associated with Pre-

Shipment and Post-Shipment advances

• To examine the relationship between the inflow and

outflow of foreign currencies at the branch level.

OBJECTIVES OF THE STUDY

ILLUSTRATION

Ordered100 tonnes of Cotton Yarn

Ordered 100 tonnes @ USD 750/tonOn date of order 1 USD = Rs 46.77 Total cost = Rs. 1,28,61,750 On day of payment 1 USD = Rs 47.77Total cost = Rs. 1,31,36,750

Loss = Rs. 2,75,000

Cont…

INSTRUMENTS FOR HEDGING A RISK

• Forward contract

• Futures

• Options

• Swaps

FORWARD CONTRACT

• Forward Purchase contract• Forward Sale Contract

• Fixed Forward contract• Option Forward contract

FORWARD CONTRACT

• Forward contracts ended at Premium

• Forward contracts ended at Discount

NRE Deposits

NRE Savings

EXIM RATIO EXIM Ratio

=

Value of Export/Value of Import

Working of the EXIM ratio

• Consolidation of total value of

exports and imports.

• Calculation of cross rates

• Conversion of all the currencies into

US Dollars

Total value of exportsYEAR/ CURRENCY USD EURO CHF GBP CAD AUD JPY

Apr 06 – Mar 07 1128720 263444 28783 17494 nil nil 486114

Apr 07 - Mar 08 1207908 202590 50197.8 5247.3 1888.17 nil nil

Apr 08 – Mar 09 7276421 213781 97809 17728.5 1121.15 nil 52531306

Apr 09 – Mar 10 3178527 3638718 105391 72437.3 166.5 nil 6573036

YEAR/ CURRENCY

USD EURO CHF GBP CAD AUD JPY

Apr 06 – Mar 07 1986780 72513.5 nil nil nil nil Nil

Apr 07 - Mar 08 2212371 154374 49909.2 2798.5 nil nil Nil

Apr 08 – Mar 09 8908881 375833 124659 27580 nil 110480 1188053

Apr 09 – Mar 10 4013242 99783.6 45904.5 5121.26 nil 51100.5 Nil

Total value of imports

CROSS RATES

EURO / USD = 57.20 / 42.90 1 EURO = 1.33 USD

CURRENCY USD EUR CHF GBP CAD AUD JPY

AMOUNT 2212371 154374 49909.2 2798.5 nil nil nil

CROSS RATE 1 1.33 0.82 1.97 nil nil nil

AMT IN USD 2212371 205317 40925.5 nil nil nil nil

GRAND TOT(IN USD) 2,464,127

Value of imports [April 2007 – March 2008]

CURRENCY USD EUR CHF GBP CAD AUD JPY

AMOUNT 1207908 202590 50197.8 5247.3 1888.17 nil nil

CROSS RATE 1 1.34 0.81 1.98 0.87 nil nil

AMT IN USD 1207908 271470 40660.2 10389.7 1642.71 nil nil

GRAND TOT(IN USD) 1,532,070.644

Value of exports [April 2007 – March 2008]

CALCULATION

EXIM ratio = Value of exports / Value of

Imports

= 2464127 /

1532070.644

= 1.61 times

Results for 4 years

April 2006 – March 2007 – 1.08 times




SUGGESTIONS - Bank

• Bank to enter into inter-bank Forward

contracts

• Banks should check that Forward

contracts are not used for

speculation purposes

SUGGESTIONS - Customers

• Enter into more Forward contracts

• EEFC account holders can also enter

into Forward contracts

• Calculate the amount using Cross

rates and enter into Forward

contracts in that currency

BIBLIOGRAPHY

• Foreign Exchange – By C. Jeevanandam• International Business – By Francis Cherunilam • www.iob.in • www.forex.com• http://www.forex4you.com• http://forex-history.net• http://www.x-rates.com• http://www.indexmundi.com• http://www.economywatch.com

KARTHIGA. DMBA I YR

PONDICHERRY UNIVERSITY

IOB Ppt _ Karthiga. D

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