Question
Under the revised RBI instructions on hedging foreign
exchange risk, users are allowed to hedge using exchange-traded foreign exchange derivatives. However, these hedging contracts must meet certain criteria. Which of the following is NOT a condition required for hedging with foreign exchange derivatives involving INR?Solution
The "Risk Management and Inter-Bank Dealings – Hedging of Foreign Exchange Risk" circular states that users are required to adjust their hedge if the exposure ceases to exist, but there is no specific requirement for liquidation within 30 days regardless of market conditions. Instead, adjustments depend on the nature and timing of the exposure change.
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