Sunday, November 22, 2009

RBI zero-cost facility in forex

The Reserve Bank of India (RBI) on Wednesday moved to ease zero-heating or cost structures to ensure greater transparency in forex trading in derivatives. Since importers and exporters allowed to write "covered call and put options, both in foreign currency rupee and cross currency and receive awards in the same currency, RBI feels these facilities should withdrawn with immediate effect .

Therefore, in order to provide further clarity in this context, a monthly statement from the customer on the booked amounts and the value in the past, which filed the central bank.

RBI wants to ensure that all controls are in place and all the details of the transaction were disclosed. The company must also ensure that an annual certification is given to its board of directors, and all derivative transactions are approved and the board is aware of the same are, "said a source.

In addition, a joint declaration must also be that the derivatives risks are adequately hedged between the parties.

Is "In the past, when the fraud took place in foreign exchange derivatives, it is when considering that the underlying documents by fax or email, in some cases was found. So go ahead, make sure each bank must that given a certificate by an auditor on an annual basis, "said the source.

Source added that the banks have also set the level of exposure hedged with other banks, especially if protection is to be declared done in parts.

Talking about the product properties, it was removed from the complex structured products, and with a plain-vanilla cross-currency option at the time of creation is allowed to happen.

Such a public bank in the country had secured a seven-year-rupee liability for 7%, moved to yen, which appreciated strongly against the dollar later, and thus citing losses.

Premiums should be determined in a transparent manner and options can not be combined with other derivative products, said the source.

The RBI in its draft on foreign exchange derivatives is said that banks can hedge their risks from the movement of the gold price and currency, assets and liabilities.

"The banks are allowed to implement adequate internal controls, risk monitoring and management systems and an assessment of the market mechanism are in a foreign currency rupee options book, requires the prior approval of the RBI walk," it said.

Banks and companies can and then cancel their forward contracts, provided they give their information on the exposure.

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