Get right price on your Fx and Save Cost
Written by QuantArt Market
Forex Hedging | 10 min Read
Indian borrowers and bankers often need to understand the hedge cost of USD ECBs.Here we are listing down some common hedge costs which provide a fair idea to start with.
- If you have an ECB at USD 6MLibor + 200 bps the full hedge cost for the same will be INR 7.42%, 7.99%, and 8.43% respectively for bullet maturity of 3,5 and 10 years. For amortizing loan cost will be different.
- The fixed rate of hedging only the USD Libor risk and no currency risk will be 0.32%, 0.43%, and 0.81% respectively for bullet tenor of 3,5 and 10 years.
- The forward premium curve is steep. While 1 year annualized premium is 4.21%, the rates are 4.61%, 4.90%, and 4.20% respectively for 3,5 and 10 years.
- The cost of taking a plain call option instead of a forward contract is roughly 1.0% p.a. extra over forward cost for 1 year.
- The cost of call spreads to protect up to Rs 15.00 ( 73.00 to 88.00) cost ranges between 3.4%, 2.7% and 1.5% for 3,5 and 10 years of bullet maturity. The cost of call spreads till forward level costs 3.1%,3.5%, and 3.3% respectively for 3,5 and 10 years of bullet maturity.
*Please note, these are standard indicative levels for bullet maturities. Levels change every day as well.