Question
 As per a recently released research paper by RBI,
what is the optimal hedge ratio for ECBs portfolio raised by firms in India?Solution
Indian corporates which have borrowed in US dollars are exposed to currency volatility as they may be 'inadequately' hedged to protect them from sudden swings in the direction of currency movement. A RBI research paper finds that depreciation of the Indian rupee has an adverse impact on the issuance of External Commercial Borrowings (ECBs) in the short as well as long run. The optimal hedge ratio for the ECBs portfolio is estimated at 63 per cent for the periods of high volatility in the forex market.
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