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State Bank of India
Global Markets
FOREX MARKET
Factors that affect Forex Market
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Exchange Control
Interest Rate
Inflation
Economic growth - GDP
News and Information
Pattern of Exports & Imports – Trade Deficit
Indian Economy
Growth is slowing down
The supply side of the economy has not kept up
with the demand side of the economy
High commodity
situation further
prices
have
worsened
the
Inflation should moderate in Q4 2012 as slowing
demand will lower core inflation
Interest rates have probably not peaked
Indian Economy
India’s Foreign Trade
During April-Sept 2011, India's exports grew by 52% to
$ 160 bn from $ 105.2 bn in the same period last year.
Such growth in coming months is uncertain, given the
worsening global macroeconomic outlook and high
interest rate in the domestic market.
During April-Sept 2011, India's imports expanded by
32.4% to $ 233.5 billion. The trade deficit during the
April-Sept’ 2011 period stood at $ 73.5 billion.
Increasing Trade Deficit further depreciates Rupee.
The recent depreciation of rupee will also push up cost
of imports leading to wider trade deficit in coming times.
India’s Foreign Trade
India’s Economy Outlook
• Economy is expected to grow at 7%+ in 2011-12 lower than
previous estimate of 9%. All other indicators are pointing
downwards.
• Weak finances, persistently high inflation and policy inertia has
considerably weakened the government position.
• RBI raised Repo rate since 2010 from 4.75% to current level of
8.50% mainly to tame inflation even at the cost of short-term
growth.
• On the external front, exports may not be able to keep the
steady 25% growth in the coming months given the weak
external demand.
• Trade deficit USD 73.5 billion for HY 2011-12.
US Economy
 S&P downgrades US credit rating from AAA to
AA+ for the first time.
 Fed funds rates (0-0.25%) at exceptionally low
till mid-2013 acknowledging deterioration in
overall market conditions
 Fed affirmed its readiness to employ tools to help
US economy.
 Despite the downgrade any significant rise in the
borrowing costs in the US may not be there given
the dearth of liquid investment avenues.
Dollar is still considered safe heaven
Euro Zone fears rise
• The debt crisis in the peripheral European
economies have reached to the main economies.
• Though the Greek crisis was averted at the last
minute, the focus is now on the larger Italian and
Spanish economies.
• The borrowing costs of these two large economies
have already touched unsustainable levels forcing
the intervention from ECB.
• Italy and Greece have seen the regime change.
• The crisis is far from over and may take longer
time
GROSS DEBT OF EUROPEAN COUNTRIES AS A
PERCENTAGE OF GDP
EUROPEAN
COUNTRIES
DEBT AS % OF GDP
2010
DEBT AS % OF GDP
2011 EXPECTED
GREECE
143%
166%
ITALY
119%
121%
IRELAND
95%
109%
PORTUGAL
92%
106%
FRANCE
82%
86%
GERMANY
84%
83%
INDIA
64%
62%
FOREX MARKET
Global Forex Market
The daily Trade – Close to $4.0 Trillion
60 times the turnover of NYSE stocks, 15 times U.S. daily GDP
Indian Forex Market
Merchant Transaction
Less than 5%
Small but Rapidly Growing Market
Average Daily Turnover is close to $20 bn
High speculation and arbitrage leads to high volatility…
Currency Volatility
USD/INR
Currency Volatility
EUR/USD
USD/INR FORECAST
USD/INR FORECAST………
RBI’s recent guidelines
Existing
On documentary basis,
Forward Contracts can be
cancelled and rebooked
Under Past Performance
(PP) basis, limit was given
as actual Export/ Import of
average of last three years
or previous year, whichever
is higher
25% of PP booking were on
deliverable basis. (75%
could have been cancelled)
FII can cancel and rebook
10% of market value of
portfolio.
Proposed
Forward Contracts once
cancelled can not be rebooked
For importers, limit has been
reduced to 25% as calculated
earlier. Importers who have
utilised in excess of revised limit
will not be allowed further
booking
100% of PP booking will now be
on deliverable basis. In case of
cancellation, EXCHANGE GAIN
will not be passed on.
Forward contracts once
cancelled can not be rebooked.
However, roll overs are allowed.
RBI’s recent guidelines …….
• Bank’s Net Overnight Open Position
Limit (NOOPL) has been reduced
• Intraday open position/ Daylight Limit
capped at NOOPL
These measures may reduce volatility in the market
GOLD (XAU)
• Gold likely to benefit from the widespread Euro zone
uncertainties as well as fragile condition of US economy.
• Currently trading at around 10% discount to all time high of $
1920.30/ oz
• The volatility has gone up considerably. However, the medium
term price trend remains bullish.
• Physical demand in India is flat since Deewali due to record
high cost. It is likely to be robust again if price drops to
Rs.26000-27500 range
• Suggested to hedge exposure due to high volatility in price
both in USD terms as well as in USD/INR leg.
May 23, 2017
Strategies
 Hedge Your Exposures:
When to Hedge
When Risk Crystallizes
When you are within your costing
How much to Hedge
Keep 20-30% of your exposure open (optional)
 Avoid speculation and never leverage your exposures
 Understand well before entering into any deal.
 Keep track of all outstanding Forward Contracts and suitably advise to
Branch
 Complete all RBI guidelines viz. Risk Management Policy duly approved
by board, ISDA, etc.
THANK YOU