Long term USD Hedging 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 7.25%, 7.69%, and 8.11% 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 0.35%, 0.49%, and 0.88% respectively for bullet tenor of 3,5 and 10 years.
- The forward premium curve is steep. While 1 year annualized premium is 4.10%, the rates are 4.51%, 5.40%, and 5.72% 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 ( 73.30 to 88.30) cost ranges between 3.99%, 3.14% and 1.52% for 3,5 and 10 years of bullet maturity. The cost of call spreads till forward level costs 3.40%,3.73%, and 3.51% 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.