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Unhedged foreign currency exposure

Statutory Audit 2458 views 1 replies

Dear all,

Bankers have asked  for Annexure I – Declaration from borrowers with foreign currency exposure.

The details of FCY receivables and payables are asked. 

My query is whether Packing Credit loan outstanding as on quarter ending is to be shown under FCY payables ?

If so whether it should be shown under hedged foreign currency exposure or unhedged foreign currency exposure 

TIA.

Replies (1)

Hey! On your query about Packing Credit loan and foreign currency exposure:


1. Should Packing Credit loan outstanding be shown under FCY payables?

  • Yes, Packing Credit loans are foreign currency loans extended by banks to exporters to finance their working capital needs.

  • Since it is a liability in foreign currency, it should be shown under Foreign Currency (FCY) Payables as part of your foreign currency exposure.


2. Under Hedged or Unhedged Foreign Currency Exposure?

  • Packing Credit loans are generally considered as foreign currency liabilities taken to finance export receivables.

  • Whether it is hedged or unhedged depends on whether you have taken a foreign exchange hedge (like forward contracts, options, or swaps) to cover this exposure.

  • If you have hedged the Packing Credit loan exposure (say via forex derivatives), it should be shown under Hedged Foreign Currency Exposure.

  • If you have no hedge for this loan, it should be reported under Unhedged Foreign Currency Exposure.


Summary:

Item Show under
Packing Credit loan outstanding FCY Payables
If hedged with forex derivative Hedged Foreign Currency Exposure
If no hedge Unhedged Foreign Currency Exposure


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