Exchange rate impact on Buyers credit

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Foreign exchange rate fluctuations can impact buyers credit and Letter of Credit (LC) transactions. Entities utilising buyers credit must adhere to regulatory guidelines for hedging foreign currency exposure and maintain a board-approved risk management policy. This means buyers credit doesn't automatically cover exchange rate risk; importers need to actively pursue hedging options, similar to other import transactions.

Renjith.R.s.

Renjith.R.s. (Querist)
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29 August 2022 Hi, Foreign exchange rate variation risk is applicable for Buyers credit and LC transaction? For cover exchange rate risk under buyers credit whether we have to go for additional risk cover mechanisms?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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29 August 2022 Yes, The entities raising buyers credit are required to follow the guidelines for hedging, if any, issued by the concerned sectoral or prudential regulator in respect of foreign currency exposure. Such entities shall have a board approved risk management policy.

Renjith.R.s.

Renjith.R.s. (Querist)
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29 August 2022 Thanks sir, Buyers credit will not cover exchange rate risk automatically , importer have to go for hedging options like other imports and through LC.

Is it right?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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29 August 2022 Yes, you are right......

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