Correct Answer : Option (C) - 63%
The optimal hedge ratio for the External Commercial Borrowings (ECBs) raised by firms in India is estimated at 63% for the periods of high volatility in the foreign exchange (forex/FX) market, according to a Reserve Bank of India (RBI) Working Paper.
An optimal hedge ratio is a ratio that implies the percentage of total asset or liability exposure that an entity ought to hedge against exchange rate fluctuations.
In times of typical high FX volatility, firms issuing ECBs may take recourse to hedge their exposure financially/ naturally in the range [63 per cent, 66 per cent], which would translate to the total cost on loan, including hedging cost, proportional to nearly 9 per cent,said Ranjeev, Assistant Adviser, Department of Statistics and Information Management, RBI.
Source : The Hindu Business Line
Published On : January 24, 2022
Category : Business and Economics
