FEMA GUIDELINES ON RISK MANAGEMENT

As per the current regulations issued on 1

st
of July 2014 (applicable till 30
th
of Jun 2015) under
FEA! the follo"ing facilities are a#ailable for hedging foreign e$change e$posures%
A& Facilities for person resident in India other than ADI
1 !ontract"al E#pos"re
A' (ategory ) ban*s ha#e to e#idence the underlying docu+ents so that the e$istence of
underlying foreign currency e$posure can be clearly established& A' (ategory ) ban*s! through
#erification of docu+entary e#idence! should be satisfied about the genuineness of the
underlying e$posure! irrespective of the transaction being a current or a capital account& Full
particulars of the contracts should be +ar*ed on the original docu+ents under proper
authentication and retained for #erification&
,he products a#ailable under this facility are as follo"s%
a& For"ard (ontracts
- ,rade transaction
- F') ( e.uity and debt)
b& (ross currency /ptions ( not in#ol#ing )01! European currency only)
- ,rade transaction
- 2ub+ission of 3id4tender
c& Foreign (urrency- )01 option
- ,rade transaction
- 2ub+ission of 3id4tender
d& Foreign (urrency- )01 2"aps
- 5ong ter+ borro"ing or interest e$posure&
e& (ost reduction structures
- ,rade transaction
- E(3
$ %ro&a&le e#pos"res '&ased on past perfor(ance)*
,o hedge currency ris* on the basis of a declaration of an e$posure and based on past
perfor+ance up to the a#erage of the pre#ious three financial years6 (April to arch) actual
i+port4e$port turno#er or the pre#ious year6s actual i+port4e$port turno#er! "hiche#er is higher&
Probable exposure based on past performance can be hedged only in respect of trades in
merchandise goods as well as services.
,he products a#ailable under this facility are as follo"s%
i) For"ard
ii) (ross currency options
iii) Foreign (urrency ! )01
i#) (ost reduction structures
Eligibility%
i) (orporate +ini+u+ of 200 (rore of annual turno#er AND
ii) )+ports and E$ports 71000 (rore
+ Special Dispensation*
a& For S(all and Medi"( Enterprises 'SMEs)*
A#ailable 8roduct%
- For"ards (ontracts
b& Resident Indi,id"als
A#ailable 8roduct%
- For"ard contracts
8urpose for "hich these products can be used%
- )n"ard and out"ard re+ittances up to 92!50!000 "ithout producing docu+ents(nor+ally on
deli#erable basis)
- a$i+u+ tenor allo"ed % 1 year
- 2elf declaration of the sa+e transaction not being hedged at any other A'
4& !URREN!- FUTURES ON RE!OGNI.ED STO!K E/!0ANGES*
A#ailable 8roducts% :2'-)01! Euro-)01! ;en-)01! 8ound-)01
Eligibility% Only person resident in India
Essential Features
i) (ontract si<e%
1000 :2' for :2'-)01
1000 Euro for Euro-)01
1000 8ound for 8ound =)01
100!000 ;en for ;en- )01
ii) (ontract should be .uoted and settled in )01
iii) a$i+u+ duration = 12 +onths
i#) 2ettle+ent price decided on the basis of 13) reference rates
1 !URREN!- O%TIONS ON RE!OGNI.ED STO!K E/!0ANGES
A#ailable 8roducts % :2'-)01
Eligibility % Only persons resident in India
Essential features
- :nderlying should be :2'-)01 spot rate
- 8re+iu+ style! European! call and put option&
- 2i<e% :2' 1000 for each contract
- 8re+iu+ .uoted in )01 and outstanding position in :2'
- a$i+u+ tenor % 12 +onths
- (ash settle+ent in )01( 13) reference rate)
-
2 Facilities for person resident o"tside India
A. FII * 'Only permitted capital A/C transactions can be hedged)
8urpose%
o )n#est in e.uity and debt on basis of +ar*et #alue
o )8/ related cash flo" under A23A +echanis+
A#ailable 8roducts%
o For"ard
o Foreign currency- )01 option
o Foreign currency =)01 s"aps for )8/ related flo"s
. NRI
8urpose%
o 8ortfolio in#est+ent on the basis of +ar*et #alue
o 'i#idend due on 2hares held in )ndian co+panies
o A+ounts held in F(01( 3) deposits
o 3alances of 01E account
A#ailable 8roducts%
o Foreign (urrency-)01 For"ards
o Foreign (urrency- )01 /ptions
o (ross (urrency (not in#ol#ing )01) for F(01 (3) deposits&
C. FDI
8urpose%
o )n#est+ents +ade in )ndia after 1>>3 ( 1
st
Jan)
o 'i#idends recei#able fro+ shares of )ndian co+panies
o 8roposed in#est+ent in )ndia
o a$i+u+ tenor% ? +onths sub@ect to all due appro#als
o E$change gi#en "ill not be passed to o#erseas in#estors
8roducts%
o Foreign currency- )01 For"ards
o Foreign (urrency- )01 /ptions