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Long term USD Hedging cost

Written by QuantArt Market

Forex Hedging | 10 min Read
Best Hedging Strategy For Importers, import port

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

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