Table of Contents

i. ii. iii. iv. v. vi. vii.

Cover Page............ .. 1 Title Page..... ........... Certificate................ Acknowledgement........... Table of content........ List of Symbols and Abbreviations...........5 Executive Summary....8

2 3 3 4

Chapter 1: Introduction 1.0 Introduction..9 1.2 History..9 1.3 Forex Market..... ..10 1.4 Market size and liquidity......... ....11 Chapter 2: Objectives of the Projects 2.1 Introduction....13 2.2 objective parameters...........13 Chapter 3: Scope of the project 3.1Scope of project..........14 3.2 Introduction...14 Chapter 4: Research methodology 4.1Introduction ........15 4.2 Methodology...... ..15 Chapter 5: Organisation overview

5.1 Power Finance Corporation: An Overview....16 5.2 Services Offered by PFC..17 5 .2.1 Financial Services.......18 5.3 Consultancy Services 18 5.3.1 Institutional Development Services....19 5.4 Borrowing Profile of PFC........19 5.5 Risk Identification and Analysis........20 5.5.1 Types of Risk..20 5.5.1.1 Credit Risk...20 5.5.1.2 Liquidity Risk..20 1

5.5.1.3 Interest Rate Risk.....21 5.6 Managing of Interest Rate Risk on Rupee Debts...22 5.6.1 Currency Swap from Rupee to USD...22 5.6.2 Coupon Swap from Rupee to USD.....22 5.7 Hedging of Rupee Loans through Indian Benchmarks......22 5.7.1 MIBOR Linked Swap......22 5.7.2 MIFOR Linked Swap......23 5.7.2.1 Forward rate agreements ....23 5.7.2.2 Exchange Traded Rupee Interest Rate Futures.......23 5.8 Role of AL & RM Unit in Risk Management ......24 Chapter 6: Literature Survey 6.0 Risk...25 6.1 Risk Management....25 6.2 Risk Identification...25 6.3 Market Risk.....27 6.4 Exchange Rate Risk..... 27 6.5 How the Forex Market Works.... .28. Chapter 7: ..29 7.2 BlackScholes model.. 30 7.2.1. Define BlackScholes model. .31 7.3.1 Calculation of Option premium using BlackScholes Formulae.33 7.4. Calculate the option premium by varying strike rate.....34 7.5 Interpretation...... .34 Chapter 8: Currency Volatility 8.1 Currency Volatility.....36 8.2 Historical Volatility....36 8.3 Mathematical definition.. 37 8.4 IMPLIED VOLATILITY...38 8.5 VOLATILITY CONES..38 8.6 TECHNICAL ANALYSIS.....39 Chapter 9 Hedging 9.1 Incremental Cost of hedging to the Organization......40 9.2 Types of hedging.. ..40 Project in the Company 7.1. Pricing Option..

9.2.1 Natural hedges... ..40 9.2.2 Categories of Hedgeable risk...... 40 9.3 Hedging currency risk........41 9.4 Hedging Impact..42 9.4.1 Evaluation for forward hedging .........42 9.4.1 Summary table of Hedging.....43 9.5 Interpretation..... .45 Chapter 10: Trend analysis 10.1FOREX Trend Analysis.....45 10.2 Important Types of Forex Trend Lines.... .45 10.3 Trend analysis of forex market from 1 January 2009 to 1 June 2009...46 10.4 Interpretation.47

Chapter 11: Conclusions and interpretations 11.1 Conclusions..51 11.1 Hedging... 51 Chapter 12: Suggestions & Recommendations 12.1 Suggestions & Recommendations..............52 12.2 Limitations..52 Chapter13: Annexure

13.1 Annexure..53 13.2 References....54

List of Symbols and Abbreviations

1. FOREX..............................................................................................................Foreign Exchange 2. PFCL ...........................Power Finance Corporation Ltd. 3. SEB.......................................................State Electricity Board. 4. IPPs...................................................................................................Independent Power Projects 5. FI.................................................................................................................Financial institutions 6. SGCs.............................................................................................State Generating Corporations 7. LIBOR........................................................................................London Inter bank Offered rate 8. USD............................................................................................................United Sates Dollars 9. MIBOR.................................................................................. Mumbai Inter Bank Offered Rate 10. MIFOR................................................................................... Mumbai Inter Bank Forward Rate

11. FRAs..................................................................................................... Forward rate agreements 12. ALCO............................................................................................ Assets Liabilities Committees 13. EBS..... Electronic Broking System 14. S.the price of the stock (please note below). 15. V(S,t) the price of a derivative as a function of time and stock price. 16. C(S,t) .the price of a European call and P(S,t) the price of a European put option. 17. K ...the strike of the option. 18. r... The annualized risk-free interest rate, continuously compounded. 19. ... The drift rate of S, annualized. 20. t ..a time in years; we generally use now = 0, expiry = T.

Executive Summary

The project deals with the exposure to the Foreign Exchange Market and the Risk associated with it. Here we are studying FOREX Market in detail and try to analyze the fact & figures associated with it and how

the processing done with it in Financial Institution. The purpose of project is to minimize the risk associated with Forex Market using the derivative tools (Hedging) in the working profile of PFCL (Power Finance Corporation Ltd.) in order to gain maximum profit to achieve the heights of success in near future. The project also deals with the impact of current scenario prevailing and how the various derivatives tools helps to overcome the various downfalls in particular market scenario. The Project is an attempt to calculate the Call Option Premium and how it varies if we vary time factor or strike rate (forward rate) keeping other factors involved constant at the same time. The Project also shows the effect of hedging on the portion of amount that has been taken by the firm is either beneficial or not for the company. Hence, the project is an attempt to study the fluctuations that exist in the foreign exchange market and its impact on the financial institution. The project deals with the study of BLACK & SCHOLES MODEL in this same context.

Chapter 1: Introduction to FOREX Market

2.0 Introduction

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central

banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex and related markets currently is over US$ 3 trillion. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks, and are subject to forex scams

1.2 History
The idea of Forex trading can be traced back to ancient times to when people first began trading currency from differing countries and groups. Yet despite this, the newest existing financial market is the foreign exchange industry The foreign exchange market (currency, forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971. Presently, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007

by the Bank for International Settlements. Since then, the market has continued to grow. According to Euro moneys annual FX Poll, Volumes grew a further 41% between 2007 and 2008.

1.3 Forex Market

The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollars, Euros, Japanese yen, Pounds Sterling, etc., and the need for trading in such currencies. Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled

since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues have made it easier for retail traders to trade in the foreign exchange market. In 2006, retail traders constituted over 2% of the whole F1 market volumes with an average daily trade volume of over US$50-60 billion Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007.

The ten most active traders account for almost 80% of trading volume, according to the 2008 Euro money FX survey. These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually 03 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard "lot" Presently, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euro moneys annual FX Poll, volumes grew a further 41% between 2007 and 2008.

1.4 Market size and liquidity The foreign exchange market is unique because of
Its trading volumes, The extreme liquidity of the market, Its geographical dispersion, Its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday), The variety of factors that affect exchange rates. The low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes) The use of leverage

Main foreign exchange market turnover, 1988 - 2007, Measured in billions of USD
As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements, average daily 9

turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows $1.005 trillion in spot transactions $362 billion in outright forwards $1.714 trillion in foreign exchange swaps $129 billion estimated gaps in reporting Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%.In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.

Chapter 2 Objectives of the Project

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2.1 Introduction
The objective of project is to minimize the risk associated with Forex Market using the derivative tools (Hedging) in the working profile of PFCL (Power Finance Corporation Ltd.) in order to gain maximum profit to achieve the heights of success in near future

2.2 This would require assessing the following parameters:

Risk Risk analysis Risk management Derivatives Volatility Hedging Value at Risk

Chapter 3

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Scope of the Project

3.1 Introduction
The scope of study primarily involved the study of risk policy of PFC, knowledge of Forex market

worldwide, analysis of currency and interest rate movement hedging technique etc.

Chapter 4 Research Methodology

4.1

Introduction

This section gives a brief on the process followed for analysis and the methodology of the work executed.

4.2 Methodology

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All the information and data used in this project has been derived from the annual report of the company for the year 2007-08. The project is entirely based on secondary data.

Reasonable assumptions have been made to account for any deficiencies in the publish data and the same has been verified by the company mentor.

All other data used in this project has been sourced from Internet from reputed sites like Bloomberg and Reuters, wikipedia etc.

All assumptions have been standardized to percentage terms to maintain integrity with the actual positions

Chapter 5 Organization Overview

5.0 Power Finance Corporation: An Overview
5.1 Introduction Power Finance Corporation Limited is a Govt. of India undertaking set up in July 1986 as a Development Financial Institution (DFI) engaged in Power Sector financing. The Corporation was registered as a NBFC 13

by RBI in February 1997. PFC was set up to establish an institutional mechanism to augment the flow of resources to power sector. Initially the objective of PFC was to provide assistance to various State Electricity Boards (SEBs) and State Generating Corporations (SGCs). In line with the government of Indias decision to privatize power sector, PFC has started extending finance to Independent Power Projects (IPPs) in the private sector either on its own or as a part of a consortium with other FIs. PFC has developed and adopted appropriate criteria of financing power projects, assigning financial resources more closely with physical requirements of projects according to national priorities. PFCs principal focus is to leverage off both its power project risk assessment capabilities and its existing client base, thereby enabling it to be one of the leading sources of project finance in the Indian power sector. The functions and the obligations enjoyed upon PFC encompass a leadership role in the sectoral development that envisages improving the overall efficiency of the utilities through the promotion of improvements in technical performance, establishment of sound and efficient operational and financial systems and to encourage balanced growth of all segments of the power sector specifically in terms of quantity, quality and reliability of the power supply. The development content thus form part of PFCs functional role in the power sector. Corporate Mission PFC's mission is to excel as a pivotal developmental financial institution in the power sector committed to the integrated development of the power and associated sectors by channelling the resources and providing financial, technological and managerial services for ensuring the development of economic, reliable and efficient systems and institutions.

5.2 Services Offered by PFC

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5.2.1 Financial Services:

Term loans - It covers financial assistance to power projects including Thermal and Hydro generation projects, survey and investigation of power projects, system improvement and energy conservation schemes, renovation and modernization of power plants etc. Lease Financing- Under schemes for financial leasing of power equipment, any equipment or machinery essential for power projects and associated works is covered. Direct Discounting of Bills - The credit under Bill Discounting Scheme is available to all equipment manufacturers to enable them to sell their equipment on deferred payment terms to the purchasers of power sector. Guarantee Services - As the fund requirements for the power sector are enormous and many funding agencies insist on guarantee by an Indian Financial Institution (FI), PFC has started providing guarantee services subject to its satisfaction about the borrowers creditability.

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 Loan Syndication - Large projects have normally more than one Financial Institution (FI) providing funds for them. For effective arrangement of funds and appraisal, PFC has started considering loan syndication with other leading Financial Institutions (FIs), like M/s IFCI, ICICI etc. Short Term Loan PFC opened up a new window for Short Term loan with a view to broad base its loan portfolio for improved client servicing and to assist state utilities who otherwise depended on high cost Short Term Loan from Commercial Banks.

5.3 CONSULTANCY SERVICES:

5.3.1 Institutional Development Services :

Acting as an instrument for ushering in reforms in the state utilities Utility Development Plans Financial Assistance for Power Sector Studies Reform & Restructuring of SEBs

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5.4 BORROWING PROFILE OF PFC: figures in crores

5.5 Risk Identification and Analysis

A financial risk can be defined as uncertainty attached with an increase or decrease of cash flows on account of one or more parameters influenced by movement of markets, for example, interest rate risk, exchange rate risk, liquidity risk, credit risk etc. PFC borrows funds for different tenures from different sources and on different borrowing terms. Also, the currencies of borrowing and lending can be different.

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Similarly, on lending side also, PFC is lending money on Rupee terms as well as on foreign currency terms, having different interest rates and different currencies. This indicates that PFC will face risks arising out of mismatch of cash flows due to different borrowing and lending maturities (liquidity risk), risk of interest rates being different at the time of borrowing and at the time of lending or re-lending after repayment of existing loan assets, risk of foreign currency liabilities lent for different maturities or in different currencies or at different interest reset periods.

5.5.1 TYPES OF RISK:

5.5.1.1 Credit Risk Credit risk is most simply defined as the risk of loss due to a counterparty to which a loan has been extended defaulting on payment (coupon or principal) or failing to meet its obligations in accordance with agreed terms. PFC needs to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions. PFC should also consider the relationships between credit risk and other risks. The effective management of credit risk is a critical component of a comprehensive approach to risk management and essential to the long-term success of PFC.

5.5.1.2 Liquidity Risk

Liquidity risk is the current and prospective risk to earnings or capital arising from a banks inability to meet its obligations when they come due without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. Liquidity risk also arises from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. Long term liquidity risk is periodically monitored by ALCO or the one year liquidity risk which is managed by Treasury Management Unit through daily cash Budgets for a financial year. 5.5.1.3 INTEREST RATE RISK

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Interest rate risk has the potential impact on an institutions earnings and net asset values. Interest rate risk arises when an institutions principal and interest cash flows (including final maturities), both on- and offbalance sheet, have mismatched repricing dates. The amount at risk is a function of the magnitude and direction of interest rate changes and the size and maturity structure of the mismatch position managing interest rate risk is a fundamental component in the safe and sound management of all institutions. It involves prudently managing mismatch positions in order to control, within set parameters, the impact of changes in interest rates on the institution. Significant factors in managing the risk include the frequency, volatility and direction of rate changes, the slope of the interest rate yield curve, the size of the interestsensitive position and the basis for repricing at rollover dates.

5.6 Managing of Interest Rate Risk on Rupee Debts

RBI in its circular on Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, permitted corporate to enter into a derivative contract with an authorized dealer in India or its branch overseas. The circular states that a person resident in India who has a foreign exchange or Rupee liability may enter into a contract for foreign currency-Rupee swap with an authorized dealer in India to hedge long term exposure. It also states that such contract if cancelled shall not be rebooked or reentered by whatever name called. It is further provided in the circular that the notional principal amount of the hedge does not exceed the outstanding amount of the loan and also it does not exceed un-expired maturity of the underlying loan. As a result of the above, banks in India have started offering certain products for hedging of risk arising out of fixed Rupees borrowing by a company by converting into a dollar denominated loan or only the coupon will be serviced through index like LIBOR for USD. An introduction of these products along with the associated advantages and risks is given below. For the sake of simplicity, the explanation of swapping loans into foreign currency is assumed to be denominated in USD but there is no restriction on selecting currency other than USD.

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5.6.1

Currency Swap from Rupee to USD: Under this transaction, an existing Rupee liability will be

converted into USD liability on the basis of current USD/INR rate as prevailing on the date of entering into such transaction. Under this deal, company will pay interest rate as LIBOR plus margin thereon. The margin will be fixed at the time of the deal, but the LIBOR which is normally selected for 6 months will be reset every 6 months during the tenure of the hedge transaction. Such transaction can help PFC to move its fixed Rupee liability into a Dollar denominated LIBOR linked liability. Under such deals, advantage of low LIBOR rates can be taken but associated risk would be a. The LIBOR may go up on successive interest reset dates b. The exchange rate on LIBOR interest payment dates may be higher than the rate on which the swap deal was entered c. The exchange rate on loan maturity may be higher than the rate at which swap deal was entered 5.6.2 Coupon Swap from Rupee to USD: Under this product, the underlying Rupee liability (principal amount) is not converted into USD but the interest liability thereon is de linked from Rupee and denominated on USD LIBOR. This product will be beneficial at times when the LIBOR rate is low and PFC does not want to take risk on exchange rate movement on principal. However, the risk in this product is that LIBOR may go up on each reset in future.

5.7 Hedging of Rupee Loans through Indian Benchmarks

In the above paragraph the possibility of hedging a Rupee liability into foreign currency principal or coupon liability has been explained. However, it is possible to hedge Rupee fixed liability into Rupee floating liability. Since, in this case both the transactions are based on Rupee rates, the provisions of FEMA do not get attracted. For hedging on Rupee benchmarks the following indices are being used:

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5.7.1 MIBOR Linked Swap: Under this swap, company can convert its Rupee fixed liability into a floating liability determined by MIBOR (Mumbai Inter Bank Offered Rate) plus a margin payable to the Bank. The risk under this deal is that in case MIBOR goes up faster than foreseen, the liability for interest payment can be higher than what was payable at Rupee fixed rate. 5.7.2 MIFOR Linked Swap: Under this swap, company can convert its Rupee fixed liability into a floating index called MIFOR (Mumbai Inter Bank Forward Rate). The MIFOR is sum of LIBOR plus forward premium for Dollar Rupee. In addition, a margin is to be paid by PFC over the MIFOR to Bank. The risk under this swap is that in case the LIBOR or the Dollar Rupee forward rate goes up (incidentally both are influenced by movements in external markets), the liability of PFC can go up. The suitability of this product will be analyzed keeping in view the interest rate outlook in India, the LIBOR movement risk, the forward premium on Dollar Rupee. Other Rupee Interest Derivative Instrument 5.7.2.1 Forward rate agreements (FRAs): A FRA is an agreement between two parties through which they agree to a rate of interest to be applicable from a future date, on an agreed amount of Principal. FRAs can be used to hedge the risk of a particular interest rate setting in a floating rate asset or liability. FRAs can again be used with reference to any floating benchmark rate. 5.7.2.2 Exchange Traded Rupee Interest Rate Futures: NSE introduced Interest rate futures in June 2003 as cash settled contracts. Currently there are three types of contracts:

Futures on 10-year Notional GOI Security with 6% coupon rate Futures on 10 year Zero coupon notional GOI Security Futures on 91 day Treasury bills

Contracts are available for maturities upto 1 year. At present the exchanges are using a Zero Coupon Yield curve based methodology to arrive at the final settlement price of the contract

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Since PFC is not in the business of investing in Govt. /other Securities or to take trading position in interest rate movements, the FRAs/ Futures quoted for such securities are not to be used.

5.8 Role of AL & RM Unit in Risk Management

In order to identify the responsibilities to be shared by various departments in connection with the risk identification and implementation of transactions to mitigate risk, it is considered necessary to specify the role of AL&RM Unit in the existing set up. The following jobs are being done currently:1. 2. 3. 4. Preparation of Asset Liability Gap statement with next 10 years bucketing Identification of actions based on such liquidity analysis Organizing periodical meetings of Assets Liabilities Committees (ALCO) Monitoring interest rate and exchange rate movement and identifying opportunities for hedging against such risks 5. Suggesting products to be used by concerned user department for hedging of interest rate and exchange rate risks 6. 7. 8. Monitoring macro financial performance parameters of PFC through critical ratios Follow up regarding implementation of decisions taken by ALCO Facilitating computerization of management analysis data required for getting necessary inputs for asset liabilities

Chapter 6 Literature Survey

6.0 Risk
Introduction

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Risk can be defined as the combination of the probability of an event and its consequences. Risk is one aspect that a business looks into while deciding on various issues. To enter or not to enter, to do or not to do depends upon the particular risk associated with that business or project. It has been rightly said HIGHER THE RISK, HIGHER THE RETURN AND VICE VERSA. So in order to mitigate those risks, the strategy of risk management has been followed by the company in todays world. Risk Management is increasingly recognized as being concerned with both positive and negative aspects of risk. Therefore this standard considers risk from both perspectives. In the safety field, it is generally recognized that consequences are only negative and therefore the management of safety risk is focused on prevention and mitigation of harm.

6.1 Risk Management

Risk management is a central part of any organizations strategic management. It is the process whereby organizations methodically address the risks attaching to their activities with the goal of achieving sustained benefit within each activity and across the portfolio of all activities. The focus of good risk management is the identification and treatment of these risks. Its objective is to add maximum sustainable value to all the activities of the organization. It marshals the understanding of the potential upside and downside of all those factors which can affect the organization. It increases the probability of success, and reduces both the probability of failure and the uncertainty of achieving the organizations overall objectives. Risk management should be a continuous and developing process which runs throughout the organizations strategy and the implementation of that strategy. It should address methodically all the risks surrounding the organizations activities past, present and in particular, future. It must be integrated into the culture of the organization with an effective policy and a programmed led by the most senior management. It must translate the strategy into tactical and operational objectives, assigning responsibility throughout the organization with each manager and employee responsible for the management of risk as part of their job

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description. It supports accountability, performance measurement and reward, thus promoting operational efficiency at all levels.

6.2 Risk Identification

Risk identification sets out to identify an organizations exposure to uncertainty. This requires an intimate knowledge of the organization, the market in which it operates, the legal, social, political and cultural environment in which it exists, as well as the development of a sound understanding of its strategic and operational objectives, including factors critical to its success and the threats and opportunities related to the achievement of these objectives. Risk identification should be approached in a methodical way to ensure that all significant activities within the organization have been identified and all the risks flowing from these activities defined. All associated volatility related to these activities should be identified and categorized. Business activities and decisions can be classified in a range of ways, examples of which include: Strategic - These concern the long-term strategic objectives of the organization. They can be affected by such areas as capital availability, sovereign and political risks, legal and regulatory changes, reputation and changes in the physical environment. Operational - These concern the day-today issues that the organization is confronted with as it strives to deliver its strategic objectives.

Financial - These concern the effective management and control of the finances of
the organization and the effects of external factors such as availability of credit,

foreign exchange rates, interest rate movement and other market exposures. Knowledge management - These concern the effective management and control of the knowledge resources, the production, protection and communication thereof. External factors might include the unauthorized use or abuse of intellectual property, area power failures, and competitive technology. Internal factors might be system malfunction or loss of key staff. 24

 Compliance - These concern such issues as health & safety, environmental, trade descriptions, consumer protection, data protection, employment practices and regulatory issues. In this project, we study about that risk which is associated with FOREX market. These risks can be categorized and subdivided in any number of ways, depending on the particular focus desired and the degree of detail sought. Here, the focus is on two of the basic categories of risk MARKET RISK and CREDIT RISK as they apply to foreign exchange trading. However, we have also taken the note of some other risk in foreign exchange trading i.e. liquidity risk, legal risk and operational risk.

As PFC is dealing in foreign currencies so it is exposed to these risks, viz.: 6.3 MARKET RISK
Market risk, in simplest terms, is price risk, or Exposure to (adverse) price change. Market risk is the risk that the value of an investment will decrease due to moves in market factors. The four standard market risk factors are:

Equity risk, or the risk that stock prices will change. Interest rate risk, or the risk that interest rates will change. Currency risk, or the risk that foreign exchange rates will change. Commodity risk, or the risk that commodity prices (i.e. grains, metals, etc.) will change.

6.4 Exchange Rate Risk

Exchange rate risk is inherent in foreign exchange trading. The risk that a business' operations or an investment's value will be affected by changes in exchange rates. For example, if money must be converted

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into a different currency to make a certain investment, changes in the value of the currency relative to the American dollar will affect the total loss or gain on the investment when the money is converted back. This risk usually affects businesses, but it can also affect individual investors who make international investments, also called currency risk. Interest Rate Risk Interest rate risk is risk to the earnings or market value of a portfolio due to uncertain future interest rates. It arises when there is any mismatching or gap in the maturity structure.

6.5 How the Forex Market Works

The Forex market comprises of banks, commercial companies, hedge funds, investment management firms, brokers and retail investors. The market does not have any centralized exchange. Trading generally takes place through the interbank market, which is a network of more than a thousand banks. Each bank in the network trades directly with others with the help of an Electronic Broking System (EBS), where buy and sell orders are placed and then matched on the basis of price. Interbank Forex trading continues 24 hours a day, 5.5 days a week, from Monday through midday on Saturday. On a single trading day, the market opens in Australia and shifts operations throughout the day to Asia, Tokyo, Hong Kong, Singapore, Europe and New York. The Forex trading day ends with the close of trading in New York. In the Forex market, trading always occurs in currency pairs. The pricing of a currency pair in this market is determined by the demand and supply of a currency in relation to the other in the pair. Apart from banks, currency pairs are bought and sold by individual investors via brokers.

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Chapter 7 Project in the company

7.1. PRICING OPTIONS Introduction
An option buyer has the right not the obligation to exercise on the seller. The worst that can happen to a buyer is the loss of the premium paid by him. His downside is limited to this premium, but his upside is potentially unlimited. This optionally is precious and has a value, which is expressed in terms of the option price. Just like in other free markets, it is the supply and demand in the secondary market that drives the price of an option. There are various models which help us get close to the true price of an option. Most of these are variants of the celebrated Black-Scholes model for pricing European options. Today most calculators and spread-sheets come with a built-in Black-Scholes options pricing formula so to price options we dont really need to memorize the formula. All we need to know is the variables that go into the model.

7.2 BlackScholes model

The Black-Scholes model of the market for an equity makes the following explicit assumptions: rate. The price follows a geometric Brownian motion with constant drift and volatility. There are no transaction costs. The stock does not pay a dividend (see below for extensions to handle dividend It is possible to borrow and lend cash at a known constant risk free interest

payments).

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All securities are perfectly divisible (i.e. it is possible to buy any fraction of a

share). There are no restrictions on short selling.

The model treats only European-style options. From these ideal conditions in the market for an equity (and for an option on the equity), the authors show that the value of an option (the Black-Scholes formula) varies only with the stock price and time to expiry. "Thus it is possible to create a hedged position, consisting of a long position in the stock and a short position in [calls on the same stock], whose value will not depend on the price of the stock. 7.2.1. Define BlackScholes model S, the price of the stock (please note below). V(S,t), the price of a derivative as a function of time and stock price. C(S,t) the price of a European call and P(S,t) the price of a European put option. K, the strike of the option. r, the annualized risk-free interest rate, continuously compounded. , the drift rate of S, annualized. , the volatility of the stock; this is the square root of the quadratic variation of the stock's log price process. t a time in years; we generally use now = 0, expiry = T. , the value of a portfolio. R, the accumulated profit or loss following a delta-hedging trading strategy. N(x) denotes the standard normal cumulative distribution function,

. N'(z) denotes the standard normal probability density function

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We can define the premium value as given below

where

The price of a put option may be computed from this by put-call parity and simplifies to

Interpretation: N(d1) and N(d2) are the probabilities of the option expiring in-the-money under the equivalent exponential martingale probability measure (numraire = stock) and the equivalent martingale probability measure (numraire = risk free asset), respectively. The equivalent martingale probability measure is also called the risk neutral probability measure. Note that both of these are "probabilities" in a measure theoretic sense, and neither of these is the true probability of expiring in-the-money under the real probability measure.

Using the BlackScholes Formulae we calculate the option premium by varying Time, Strike rate, Interest rate

7.3 .1

Calculation

of

Option

premium

using

BlackScholes

Formulae:

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Using following values

Volatility( ) 2 Risk Free Rate Spot Rate (s) Time (t) 3.30% 0.0011 3.91% 47.50 57 days

Calculate the option premium using Black-Scholes formula

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Premium Calculation

Voltality( ) 2 Risk Free Rate Spot Rate (s) Time (t)

3.30% 0.0011 3.91% 47.50 57

27-May-09 31-Mar-09

Months Expiration Time (T) Strike Rate (k) 3 90 47.56 6 180 47.65 9 270 47.96 12 360 48.27 15 450 48.66 18 540 49.00 21 630 49.31 24 720 49.59 27 810 49.85 30 900 50.08 33 990 50.44 36 1080 50.81 39 1170 51.19 42 1260 51.58 45 1350 50.02 48 1440 52.44 51 1530 52.86 54 1620 53.43 57 1710 53.88 60 1800 54.35 63 1890 54.83 66 1980 55.31 69 2070 55.81 72 2160 56.32 75 2250 56.83 78 2340 55.82 81 2430 56.29 84 2520 56.78 87 2610 57.27 90 2700 57.94

T-t 0.0904 0.3370 0.5836 0.8301 1.0767 1.3233 1.5699 1.8164 2.0630 2.3096 2.5562 2.8027 3.0493 3.2959 3.5425 3.7890 4.0356 4.2822 4.5288 4.7753 5.0219 5.2685 5.5151 5.7616 6.0082 6.2548 6.5014 6.7479 6.9945 7.2411

Sqrt (T-t) 0.3007 0.5805 0.7639 0.9111 1.0376 1.1503 1.2529 1.3478 1.4363 1.5197 1.5988 1.6741 1.7462 1.8155 1.8821 1.9465 2.0089 2.0693 2.1281 2.1853 2.2410 2.2953 2.3484 2.4003 2.4512 2.5010 2.5498 2.5977 2.6447 2.6909

Ln 0.0023 0.0102 0.0135 0.0168 0.0186 0.0214 0.0248 0.0290 0.0335 0.0387 0.0413 0.0437 0.0461 0.0483 0.0887 0.0513 0.0531 0.0521 0.0535 0.0546 0.0556 0.0566 0.0574 0.0581 0.0589 0.0866 0.0880 0.0891 0.0902 0.0884

D1 0.2340 0.5328 0.5354 0.5597 0.5420 0.5630 0.6007 0.6510 0.7067 0.7711 0.7825 0.7919 0.7995 0.8055 1.4288 0.7982 0.8006 0.7633 0.7620 0.7572 0.7516 0.7478 0.7409 0.7334 0.7276 1.0489 1.0453 1.0390 1.0340 0.9954

D2 0.2241 0.5136 0.5102 0.5297 0.5077 0.5250 0.5594 0.6065 0.6593 0.7209 0.7297 0.7367 0.7419 0.7456 1.3667 0.7340 0.7343 0.6950 0.6917 0.6850 0.6777 0.6721 0.6634 0.6542 0.6468 0.9663 0.9612 0.9533 0.9468 0.9066

ND1 (Delta) 0.5925 0.7029 0.7038 0.7122 0.7061 0.7133 0.7260 0.7425 0.7601 0.7797 0.7830 0.7858 0.7880 0.7897 0.9235 0.7876 0.7883 0.7773 0.7770 0.7755 0.7739 0.7727 0.7706 0.7684 0.7666 0.8529 0.8521 0.8506 0.8494 0.8402

ND2 Exponential Premium 0.5887 0.9965 0.2466 0.6963 0.9869 0.6464 0.6950 0.9774 0.8489 0.7018 0.9681 1.0327 0.6942 0.9588 1.1527 0.7002 0.9496 1.3002 0.7121 0.9405 1.4637 0.7279 0.9314 1.6451 0.7452 0.9225 1.8388 0.7645 0.9137 2.0530 0.7672 0.9049 2.1763 0.7693 0.8962 2.2926 0.7709 0.8876 2.4021 0.7721 0.8791 2.5054 0.9141 0.8707 4.0539 0.7685 0.8623 2.6606 0.7686 0.8540 2.7467 0.7565 0.8458 2.7372 0.7555 0.8377 2.8075 0.7533 0.8297 2.8668 0.7510 0.8217 2.9218 0.7492 0.8138 2.9787 0.7465 0.8060 3.0254 0.7435 0.7983 3.0684 0.7411 0.7906 3.1137 0.8331 0.7830 4.0989 0.8318 0.7755 4.1623 0.8298 0.7681 4.2150 0.8281 0.7607 4.2700 0.8177 0.7534 4.2159

31

7.4.Calculate the option premium by varying strike rate

Voltality( ) 2 Risk Free Rate Spot Rate (s) Time (t) Expiration Time (T) (T-t) Sqrt (T-t) Exponential

3.30% 0.0011 3.91% 47.50 57 90 0 0.3007 0.9965

A n a ly sis o n t h e b a sis o f S T R IK E R A T E Va ria t io n

0. 3500

0.0050

0. 3000

-0. 0150

0. 2500 -0. 0350 0. 2000 -0. 0550 0. 1500 -0. 0750 0. 1000 O p ti o n P r e mi u m % C hange

0. 0500

-0. 0950

0. 0000

-0. 1150

Str i k e R a te

32

Premium Calculation (Strike Rate)

Voltality( ) 2 Risk Free Rate Spot Rate (s) Time (t) Expiration Time (T) (T-t) Sqrt (T-t) Exponential Strike Rate (k) 47.45 47.46 47.47 47.48 47.49 47.50 47.51 47.52 47.53 47.54 47.55 47.56 47.57 47.58 47.59 47.60 47.61 47.62 47.63 47.64 47.65 47.66 47.67 47.68 47.69 47.70 47.71 47.72 47.73 47.74 47.75 Ln 0.0046 0.0044 0.0042 0.0040 0.0038 0.0036 0.0034 0.0032 0.0030 0.0027 0.0025 0.0023 0.0021 0.0019 0.0017 0.0015 0.0013 0.0011 0.0009 0.0006 0.0004 0.0002 0.0000 -0.0002 -0.0004 -0.0006 -0.0008 -0.0010 -0.0012 -0.0015 -0.0017

3.30% 0.0011 3.91% 47.50 57 90 0 0.3007 0.9965 D1 0.47 0.45 0.42 0.40 0.38 0.36 0.34 0.32 0.30 0.28 0.26 0.23 0.21 0.19 0.17 0.15 0.13 0.11 0.09 0.06 0.04 0.02 0.00 -0.02 -0.04 -0.06 -0.08 -0.10 -0.13 -0.15 -0.17 D2 0.4574 0.4362 0.4150 0.3937 0.3725 0.3513 0.3301 0.3089 0.2877 0.2665 0.2453 0.2241 0.2029 0.1817 0.1605 0.1394 0.1182 0.0970 0.0759 0.0547 0.0336 0.0124 -0.0087 -0.0299 -0.0510 -0.0721 -0.0933 -0.1144 -0.1355 -0.1566 -0.1777 ND2 0.6763 0.6687 0.6609 0.6531 0.6452 0.6373 0.6293 0.6213 0.6132 0.6051 0.5969 0.5887 0.5804 0.5721 0.5638 0.5554 0.5470 0.5386 0.5302 0.5218 0.5134 0.5049 0.4965 0.4881 0.4797 0.4712 0.4628 0.4545 0.4461 0.4378 0.4295

27-May-09 31-Mar-09

ND1 (Delta) Premium % Change 0.6799 0.3160 0.6722 0.3093 -2.12% 0.6645 0.3027 -2.14% 0.6568 0.2962 -2.16% 0.6489 0.2897 -2.18% 0.6410 0.2833 -2.21% 0.6331 0.2770 -2.23% 0.6251 0.2708 -2.25% 0.6170 0.2646 -2.27% 0.6089 0.2585 -2.29% 0.6007 0.2525 -2.32% 0.5925 0.2466 -2.34% 0.5843 0.2408 -2.36% 0.5760 0.2351 -2.38% 0.5677 0.2294 -2.41% 0.5593 0.2238 -2.43% 0.5510 0.2183 -2.45% 0.5426 0.2129 -2.48% 0.5342 0.2076 -2.50% 0.5258 0.2024 -2.52% 0.5173 0.1972 -2.55% 0.5089 0.1921 -2.57% 0.5005 0.1871 -2.60% 0.4920 0.1822 -2.62% 0.4836 0.1774 -2.65% 0.4752 0.1727 -2.67% 0.4668 0.1680 -2.70% 0.4584 0.1635 -2.72% 0.4500 0.1590 -2.75% 0.4417 0.1546 -2.77% 0.4334 0.1502 -2.80%

33

7.5 Interpretation:
Graph depict that market is not stable with change in strike rate Option premium is decreasing with strike rate while percentage change in premium is almost constant or very small change.

34

Chapter 8 Currency Volatility

8.1. Introduction
Volatility most frequently refers to the standard deviation of the continuously compounded returns of a financial instrument with a specific time horizon. It is often used to quantify the risk of the instrument over that time period. Volatility is typically expressed in annualized terms, and it may either be an absolute number ($5) or a fraction of the mean (5%). Volatility can be traded directly in today's markets through options and variance swaps. For a financial instrument whose price follows a Gaussian random walk, or Wiener process, the volatility increases as time increases? Conceptually, this is because there is an increasing probability that the instrument's price will be farther away from the initial price as time increases. However, rather than increase linearly, the volatility increases with the square-root of time as time increases, because some fluctuations are expected to cancel each other out, so the most likely deviation after twice the time will not be twice the distance from zero More broadly, volatility refers to the degree of (typically short-term) unpredictable change over time of a certain variable. It may be measured via the standard deviation of a sample, as mentioned above. However, price changes actually do not follow Gaussian distributions. Better distributions used to describe them actually have "fat tails" although their variance remains finite. Therefore, other metrics may be used to describe the degree of spread of the variable. As such, volatility reflects the degree of risk faced by someone with exposure to that variable. 8.2 Historical Volatility Historical volatility (or ex-post volatility) is the volatility of a financial instrument based on historical returns. This phrase is used particularly when it is wished to distinguish between the actual volatility of an instrument in the past, and the current (ex-ante, or forward-looking) volatility implied by the market.

Volatility over time

35

It's common knowledge that types of assets experience periods of high and low volatility. That is, during some periods prices go up and down quickly, while during other times they might not seem to move at all. Periods when prices fall quickly (a crash) are often followed by prices going down even more, or going up by an unusual amount. Also, a time when prices rise quickly (bauble) may often be followed by prices going up even more, or going down by an unusual amount. The converse behavior, 'doldrums' can last for a long time as well. Most typically, extreme movements do not appear 'out of nowhere'; they're presaged by larger movements than usual. This is termed autoregressive conditional heteroskedasticity. Of course,whether such large

movements have the same direction, or the opposite, is more difficult to say. And an increase in volatility does not always presage a further increasethe volatility may simply go back down again. In general over time volatility always increases

8.3 Mathematical definition

The annualized volatility is the standard deviation of the instrument's logarithmic returns in a year. The generalized volatility T for time horizon T in years is expressed as:

Volatility The closing price on the ith day n Number of historical days used in the

36

volatility estimate Log return on the ith day Z The number of closing prices in a year VOLATILITY SIMPLE SD MODEL This volatility provides a basic over view of the historical volatility of the currency. 8.4 IMPLIED VOLATILITY
One difference between implied and historical volatilities should be noted. In principle, volatility is a measure of the magnitude of changes in market prices of the underlying asset, and should therefore be independent of the strike price or maturity of an option. This is clearly so as regards historical volatility, as the strike price does not enter the calculation. On the other hand, in practice, volatilities implied by market prices of options are not identical across the range of strike prices or across maturities. Under normal market conditions, implied volatilities are lowest for at-themoney options and increase as the strike price moves more and more in-the-money and out-of-the-money ranges.

8.5 VOLATILITY CONES

A technique for visualizing current option implied volatility relative to historic volatilities at different maturity ranges. This technique, developed by Galen Burghardt, uses the range of historic volatilities for each options maturity from, say, one month to two years or longer, depending upon the maturities of instruments available in the market.

37

An historic volatility series is calculated for each period and 25% and 75% confidence intervals on either side of the mean historic volatility line are added. When the current implied volatility term structure is drawn on this diagram, the investor is able to determine how current option premiums compare to historic premium levels at various maturities.

The volatility data as on 26th May, 2009 are as follows: Volatility Cone of USD/INR

TIME PERIOD Annually Quarterly Daily 8.6 TECHNICAL ANALYSIS

VOLATILITY (%) 3.30 1.50 0.40

Technical analysis involves the identification of the current trend i.e. the direction of price movement and spotting any trend reversal as early as possible in different currency pairs. It involves the analysis of historical price and volume data with the help of charts. for currencies, shares and commodities traded on exchanges, such data is usually available but in the case of interbank currency market, volume data is not available and the analyst can make use of different indicators, which are derived from the price data. Many of these indicators have become so popular that they are being used extensively even for financial assets and instruments traded on exchanges.

38

Chapter 9 Finding, Data Analysis 9.1 Incremental Cost of hedging to the Organization
Introduction
Hedging is a strategy designed to minimize exposure to such business risks as a sharp contraction in demand for one's inventory, while still allowing the business to profit from producing and maintaining that inventory. Holbrook Working, a pioneer in hedging theory, called this strategy "speculation in the basis," where the basis is the difference between today's market value of (in this example) wheat and today's value of the hedge. If that difference widens, he earns a little more at harvest time. If that difference narrows, he earns a little less. He has mitigated, but not eliminated, the risk of losing the value of his wheat as of the day he established his hedge. Banks and other financial institutions use hedging to control their asset-liability mismatches,

39

such as the maturity matches between long, fixed-rate loans and short-term (implicitly variable rate) deposits.

9.2 Types of hedging

As investors become more sophisticated, along with the mathematical tools used to calculate values, known as models, the types of hedges have increased greatly. The

different types of hedges are elaborated below:

9.2.1 Natural hedges

A natural hedge is an investment that reduces the undesired risk by matching cash flows, i.e. revenues and expenses. An example is a company that opens a subsidiary in another country and borrows in the local currency to finance its operations, even though the local interest rate may be more expensive than in its home country: by matching the debt payments to expected revenues in the local currency, the parent company has reduced its foreign currency exposure.

9.2.2 Categories of Hedgeable risk

Volatility risk- In financial markets is the likelihood of fluctuations in the exchange rate of currencies. Therefore, it is a probability measure of the threat that an exchange rate movement poses to an investor's portfolio in a foreign currency.

Interest rate risk is the risk that the relative value of an interest-bearing asset, such as a loan or a bond, will worsen due to an interest rate increase. Interest rate risks can be hedged using fixed income instruments or interest rate swaps.

40

Equity the risk, or sometimes reward, for those whose assets are equity holdings, that the value of the equity falls

Credit risk is the risk that money owing will not be paid by an obligor. Since credit risk is the natural business of banks, but an unwanted risk for commercial traders, naturally an early market developed between banks and traders: that involving selling obligations at a discounted rate. See for example forfeiting, bill of lading, factoring, or discounted bill.

Securities lending - Hedged portfolio stock secured loan financing (see Hedge Loan) is a form of individual portfolio risk reduction that results typically in a limited recourse loan.

Futures contracts and forward contracts are a means of hedging against the risk of adverse market movements. These originally developed out of commodity markets in the nineteenth century, but over the last fifty years a huge global market developed in products to hedge financial market risk.

9.3 Hedging currency risk

Currency hedging (also known as Foreign Exchange Risk hedging) is used both by financial investors to parse out the risks they encounter when investing abroad, as

well as by non-financial actors in the global economy for whom multi-currency activities are a necessary evil rather than a desired state of exposure. Currency hedging is not always available, but is readily found at least in the major currencies of the world economy, the growing list of which qualify as major liquid markets beginning with the "Major Eight" (USD, GBP, EUR, JPY, CHF, HKD, AUD, CAD), which are also called the "Benchmark Currencies", and expands to include several others by virtue of liquidity. Currency hedging, like many other forms of financial hedging, 41

can be done in two primary ways: with standardized contracts or with customized contracts (also known as over-the-counter or OTC)

9.4 HEDGING IMPACT

9.4.1 EVALUATION OF FORWARDS FOR HEDGING USD / Rs In this context we have analysis the hedging impact on company. Taking assumption The Company has taken a Loan amount 100m$ on 27th May 09 USD/INR rate is 47.50 Interest to be paid LIBOR +1% Maturity of loan 27 may 2014 IRS for 5 years 3.4% Margin 1%

Using this data we calculate Interest rate in USD = 22.01 Interest rate in Rs= 114.42 Withholding tax =11.4

9.4.1 Summary table of Hedging

42

An aS oC s F r0 e C s Fn u l e Cs Fn2a e C s Fn3aiz dC s Fn4a e Cs Fn5a e C s Fn u liz dC s Fn u liz dC s Fn8a e C s F r9 % C s F r1 0 n u liz d R t n u % d ot A n aiz d ot A n % d ot A n % e ot A n % d ot An % d ot A n a e ot A n a e ot A n % d ot n u 0 e ot o 0 % p t ot o a e aA n liz e o 1% r 0 o u liz r 0 o ul r 0 o u liz r 0 o u liz r 0 o 6% r 0 o 7% r 0 o u liz r 0 Ao a d n liz 4. 0 50 4. 0 51 4. 0 52 4. 0 53 4. 0 54 4. 0 55 4. 0 56 4. 0 57 4. 0 58 4. 0 59 4. 0 60 4. 0 61 4. 0 62 4. 0 63 4. 0 64 4. 0 65 4. 0 66 4. 0 67 4. 0 68 4. 0 69 4. 0 70 4. 0 71 4. 0 72 4. 0 73 4. 0 74 4. 0 75 4. 0 76 4. 0 77 4. 0 78 4. 0 79 4. 0 80 4. 0 81 4. 0 82 4. 0 83 4. 0 84 4. 0 85 4. 0 86 4. 0 87 4. 0 88 4. 0 89 4. 0 90 4. 0 91 4. 0 92 4. 0 93 4. 0 94 4. 0 95 4. 0 96 4. 0 97 4. 0 98 4. 0 99 5. 0 00 5. 0 01 5. 0 02 5. 0 03 5. 0 04 5. 0 05 5. 0 06 5. 0 07 5. 0 08 5. 0 09 5. 0 10 5. 0 11 5. 0 12 5. 0 13 5. 0 14 5. 0 15 5. 0 16 5. 0 17 5. 0 18 5. 0 19 5. 0 20 5. 0 21 5. 0 22 5. 0 23 5. 0 24 5. 0 25 5. 0 26 5. 0 27 5. 0 28 5. 0 29 5. 0 30 5. 0 31 5. 0 32 5. 0 33 5. 0 34 5. 0 35 5. 0 36 5. 0 37 5. 0 38 5. 0 39 5. 0 40 5. 0 41 5. 0 42 5. 0 43 5. 0 44 5. 0 45 5. 0 46 5. 0 47 5. 0 48 5. 0 49 5. 0 50 5. 0 51 5. 0 52 5. 0 53 5. 0 54 5. 0 55 5. 0 56 5. 0 57 5. 0 58 5. 0 59 5. 0 60 5. 0 65 5. 0 70 5. 0 75 5. 0 80 5. 0 85 5. 0 90 5. 0 95 6. 0 00 45 .2 % 49 .2 % 43 .3 % 47 .3 % 42 .4 % 46 .4 % 40 .5 % 44 .5 % 48 .5 % 43 .6 % 47 .6 % 41 .7 % 45 .7 % 40 .8 % 44 .8 % 48 .8 % 42 .9 % 46 .9 % 51 .0 % 55 .0 % 59 .0 % 53 .1 % 57 .1 % 52 .2 % 56 .2 % 50 .3 % 54 .3 % 58 .3 % 53 .4 % 57 .4 % 51 .5 % 55 .5 % 50 .6 % 54 .6 % 58 .6 % 52 .7 % 56 .7 % 51 .8 % 55 .8 % 59 .8 % 53 .9 % 57 .9 % 62 .0 % 66 .0 % 60 .1 % 64 .1 % 68 .1 % 63 .2 % 67 .2 % 61 .3 % 65 .3 % 60 .4 % 64 .4 % 68 .4 % 62 .5 % 66 .5 % 61 .6 % 65 .6 % 69 .6 % 63 .7 % 67 .7 % 62 .8 % 66 .8 % 60 .9 % 64 .9 % 68 .9 % 73 .0 % 77 .0 % 71 .1 % 75 .1 % 70 .2 % 74 .2 % 78 .2 % 72 .3 % 76 .3 % 71 .4 % 75 .4 % 79 .4 % 73 .5 % 77 .5 % 72 .6 % 76 .6 % 70 .7 % 74 .7 % 78 .7 % 73 .8 % 77 .8 % 71 .9 % 75 .9 % 80 .0 % 84 .0 % 88 .0 % 82 .1 % 86 .1 % 81 .2 % 85 .2 % 89 .2 % 83 .3 % 87 .3 % 82 .4 % 84 % .6 85 % .0 85 % .4 85 % .8 86 % .3 86 % .7 87 % .1 85 .7 % 80 .8 % 84 .8 % 88 .8 % 99 .0 % 90 .3 % 91 .5 % 92 .7 % 93 .9 % 1 .1 % 0 4 1 .3 % 0 5 1 .5 % 0 6 49 .6 % 43 .7 % 47 .7 % 41 .8 % 45 .8 % 48 .8 % 42 .9 % 46 .9 % 50 .0 % 54 .0 % 57 .0 % 51 .1 % 55 .1 % 59 .1 % 52 .2 % 56 .2 % 50 .3 % 54 .3 % 58 .3 % 51 .4 % 55 .4 % 59 .4 % 53 .5 % 57 .5 % 50 .6 % 54 .6 % 58 .6 % 52 .7 % 56 .7 % 59 .7 % 53 .8 % 57 .8 % 51 .9 % 54 .9 % 58 .9 % 62 .0 % 66 .0 % 60 .1 % 63 .1 % 67 .1 % 61 .2 % 65 .2 % 69 .2 % 62 .3 % 66 .3 % 60 .4 % 64 .4 % 68 .4 % 61 .5 % 65 .5 % 69 .5 % 63 .6 % 66 .6 % 60 .7 % 64 .7 % 68 .7 % 62 .8 % 65 .8 % 69 .8 % 63 .9 % 67 .9 % 71 .0 % 74 .0 % 78 .0 % 72 .1 % 76 .1 % 70 .2 % 73 .2 % 77 .2 % 71 .3 % 75 .3 % 78 .3 % 72 .4 % 76 .4 % 70 .5 % 74 .5 % 77 .5 % 71 .6 % 75 .6 % 79 .6 % 73 .7 % 76 .7 % 70 .8 % 74 .8 % 78 .8 % 72 .9 % 75 .9 % 79 .9 % 83 .0 % 87 .0 % 80 .1 % 84 .1 % 88 .1 % 82 .2 % 86 .2 % 89 .2 % 83 .3 % 87 .3 % 81 .4 % 85 .4 % 8 8 .4 % 8 2 .5 % 8 6 .5 % 8 0 .6 % 8 4 .6 % 8 7 .6 % 8 1 .7 % 85 .7 % 89 .7 % 82 .8 % 86 .8 % 95 .0 % 94 .2 % 93 .4 % 92 .6 % 91 .8 % 1 .0 % 00 1 .1 % 09 1 .3 % 08 54 .1 % 57 .1 % 51 .2 % 54 .2 % 58 .2 % 51 .3 % 54 .3 % 58 .3 % 51 .4 % 54 .4 % 58 .4 % 51 .5 % 54 .5 % 58 .5 % 51 .6 % 55 .6 % 58 .6 % 51 .7 % 55 .7 % 58 .7 % 51 .8 % 55 .8 % 58 .8 % 52 .9 % 55 .9 % 58 .9 % 62 .0 % 65 .0 % 68 .0 % 62 .1 % 65 .1 % 68 .1 % 62 .2 % 65 .2 % 69 .2 % 62 .3 % 65 .3 % 69 .3 % 62 .4 % 65 .4 % 69 .4 % 62 .5 % 66 .5 % 69 .5 % 62 .6 % 66 .6 % 69 .6 % 62 .7 % 66 .7 % 69 .7 % 62 .8 % 66 .8 % 69 .8 % 63 .9 % 66 .9 % 69 .9 % 73 .0 % 76 .0 % 79 .0 % 73 .1 % 76 .1 % 70 .2 % 73 .2 % 76 .2 % 70 .3 % 73 .3 % 76 .3 % 70 .4 % 73 .4 % 76 .4 % 70 .5 % 73 .5 % 77 .5 % 70 .6 % 73 .6 % 77 .6 % 70 .7 % 73 .7 % 77 .7 % 70 .8 % 74 .8 % 77 .8 % 70 .9 % 74 .9 % 77 .9 % 80 .0 % 84 .0 % 87 .0 % 80 .1 % 84 .1 % 87 .1 % 81 .2 % 84 .2 % 87 .2 % 81 .3 % 84 .3 % 87 .3 % 81 .4 % 84 .4 % 88 .4 % 81 .5 % 84 .5 % 88 .5 % 81 .6 % 84 .6 % 88 .6 % 81 .7 % 84 .7 % 88 .7 % 81 .8 % 85 .8 % 91 .0 % 98 .1 % 95 .3 % 92 .5 % 99 .6 % 96 .8 % 1 .0 % 02 1 .1 % 09 5 9 .5 % 5 2 .6 % 5 5 .6 % 5 7 .6 % 5 0 .7 % 5 3 .7 % 5 6 .7 % 5 9 .7 % 5 2 .8 % 5 5 .8 % 5 8 .8 % 5 1 .9 % 5 4 .9 % 5 7 .9 % 6 0 .0 % 6 3 .0 % 6 6 .0 % 6 9 .0 % 6 2 .1 % 6 5 .1 % 6 8 .1 % 6 1 .2 % 6 3 .2 % 6 6 .2 % 6 9 .2 % 6 2 .3 % 6 5 .3 % 6 8 .3 % 6 1 .4 % 6 4 .4 % 6 7 .4 % 6 0 .5 % 6 3 .5 % 6 6 .5 % 6 9 .5 % 6 2 .6 % 6 5 .6 % 6 8 .6 % 6 1 .7 % 6 4 .7 % 6 7 .7 % 6 9 .7 % 6 2 .8 % 6 5 .8 % 6 8 .8 % 6 1 .9 % 6 4 .9 % 6 7 .9 % 7 0 .0 % 7 3 .0 % 7 6 .0 % 7 9 .0 % 7 2 .1 % 7 5 .1 % 7 8 .1 % 7 1 .2 % 7 4 .2 % 7 7 .2 % 7 0 .3 % 7 3 .3 % 7 5 .3 % 7 8 .3 % 7 1 .4 % 7 4 .4 % 7 7 .4 % 7 0 .5 % 7 3 .5 % 7 6 .5 % 7 9 .5 % 7 2 .6 % 7 5 .6 % 7 8 .6 % 7 1 .7 % 7 4 .7 % 7 7 .7 % 7 0 .8 % 7 3 .8 % 7 6 .8 % 7 9 .8 % 7 1 .9 % 7 4 .9 % 7 7 .9 % 8 0 .0 % 8 3 .0 % 8 6 .0 % 8 9 .0 % 8 2 .1 % 8 5 .1 % 8 8 .1 % 8 1 .2 % 8 4 .2 % 8 7 .2 % 8 0 .3 % 8 3 .3 % 8 6 .3 % 8 9 .3 % 8 2 .4 % 8 5 .4 % 8 7 .4 % 8 0 .5 % 8 3 .5 % 8 6 .5 % 8 9 .5 % 8 2 .6 % 8 5 .6 % 8 8 .6 % 8 1 .7 % 8 4 .7 % 8 7 .7 % 8 0 .8 % 8 3 .8 % 8 8 .9 % 9 2 .1 % 9 7 .2 % 9 2 .4 % 9 7 .5 % 9 1 .7 % 9 6 .8 % 1 .0 % 0 1 63 .0 % 66 .0 % 68 .0 % 61 .1 % 63 .1 % 66 .1 % 68 .1 % 61 .2 % 63 .2 % 66 .2 % 69 .2 % 61 .3 % 64 .3 % 66 .3 % 69 .3 % 61 .4 % 64 .4 % 66 .4 % 69 .4 % 61 .5 % 64 .5 % 66 .5 % 69 .5 % 61 .6 % 64 .6 % 66 .6 % 69 .6 % 61 .7 % 64 .7 % 67 .7 % 69 .7 % 62 .8 % 64 .8 % 67 .8 % 69 .8 % 62 .9 % 64 .9 % 67 .9 % 69 .9 % 72 .0 % 74 .0 % 77 .0 % 79 .0 % 72 .1 % 74 .1 % 77 .1 % 79 .1 % 72 .2 % 75 .2 % 77 .2 % 70 .3 % 72 .3 % 75 .3 % 77 .3 % 70 .4 % 72 .4 % 75 .4 % 77 .4 % 70 .5 % 72 .5 % 75 .5 % 77 .5 % 70 .6 % 72 .6 % 75 .6 % 77 .6 % 70 .7 % 73 .7 % 75 .7 % 78 .7 % 70 .8 % 73 .8 % 75 .8 % 78 .8 % 70 .9 % 73 .9 % 75 .9 % 78 .9 % 80 .0 % 83 .0 % 85 .0 % 88 .0 % 80 .1 % 83 .1 % 85 .1 % 88 .1 % 81 .2 % 83 .2 % 86 .2 % 88 .2 % 81 .3 % 83 .3 % 86 .3 % 88 .3 % 81 .4 % 83 .4 % 86 .4 % 88 .4 % 81 .5 % 83 .5 % 86 .5 % 88 .5 % 81 .6 % 83 .6 % 86 .6 % 89 .6 % 81 .7 % 84 .7 % 86 .7 % 89 .7 % 81 .8 % 84 .9 % 96 .0 % 99 .1 % 92 .3 % 94 .4 % 97 .5 % 90 .7 % 92 .8 % 6 8 .4 % 6 0 .5 % 6 2 .5 % 6 4 .5 % 6 6 .5 % 6 8 .5 % 6 0 .6 % 6 3 .6 % 6 5 .6 % 6 7 .6 % 6 9 .6 % 6 1 .7 % 6 3 .7 % 6 5 .7 % 6 7 .7 % 6 9 .7 % 6 2 .8 % 6 4 .8 % 6 6 .8 % 6 8 .8 % 6 0 .9 % 6 2 .9 % 6 4 .9 % 6 6 .9 % 6 8 .9 % 7 0 .0 % 7 3 .0 % 7 5 .0 % 7 7 .0 % 7 9 .0 % 7 1 .1 % 7 3 .1 % 7 5 .1 % 7 7 .1 % 7 9 .1 % 7 2 .2 % 7 4 .2 % 7 6 .2 % 7 8 .2 % 7 0 .3 % 7 2 .3 % 7 4 .3 % 7 6 .3 % 7 8 .3 % 7 0 .4 % 7 3 .4 % 7 5 .4 % 7 7 .4 % 7 9 .4 % 7 1 .5 % 7 3 .5 % 7 5 .5 % 7 7 .5 % 7 9 .5 % 7 2 .6 % 7 4 .6 % 7 6 .6 % 7 8 .6 % 7 0 .7 % 7 2 .7 % 7 4 .7 % 7 6 .7 % 7 8 .7 % 7 0 .8 % 7 3 .8 % 7 5 .8 % 7 7 .8 % 7 9 .8 % 7 1 .9 % 7 3 .9 % 7 5 .9 % 7 7 .9 % 7 9 .9 % 8 2 .0 % 8 4 .0 % 8 6 .0 % 8 8 .0 % 8 0 .1 % 8 2 .1 % 8 4 .1 % 8 6 .1 % 8 8 .1 % 8 0 .2 % 8 3 .2 % 8 5 .2 % 8 7 .2 % 8 9 .2 % 8 1 .3 % 8 3 .3 % 8 5 .3 % 8 7 .3 % 8 9 .3 % 8 2 .4 % 8 4 .4 % 8 6 .4 % 8 8 .4 % 8 0 .5 % 8 2 .5 % 8 4 .5 % 8 6 .5 % 85 % .8 86 % .0 86 % .3 86 % .5 86 % .7 86 % .9 87 % .1 8 3 .7 % 8 5 .7 % 8 7 .7 % 8 9 .7 % 8 0 .9 % 9 0 .0 % 9 1 .1 % 9 2 .2 % 9 2 .3 % 9 3 .4 % 9 3 .5 % 9 4 .6 % 62 .9 % 64 .9 % 66 .9 % 68 .9 % 69 .9 % 71 .0 % 73 .0 % 74 .0 % 76 .0 % 78 .0 % 79 .0 % 71 .1 % 73 .1 % 74 .1 % 76 .1 % 78 .1 % 79 .1 % 71 .2 % 73 .2 % 74 .2 % 76 .2 % 78 .2 % 70 .3 % 71 .3 % 73 .3 % 75 .3 % 76 .3 % 78 .3 % 70 .4 % 71 .4 % 73 .4 % 75 .4 % 76 .4 % 78 .4 % 70 .5 % 71 .5 % 73 .5 % 75 .5 % 76 .5 % 78 .5 % 70 .6 % 72 .6 % 73 .6 % 75 .6 % 77 .6 % 78 .6 % 70 .7 % 72 .7 % 73 .7 % 75 .7 % 77 .7 % 78 .7 % 70 .8 % 72 .8 % 73 .8 % 75 .8 % 77 .8 % 78 .8 % 70 .9 % 72 .9 % 74 .9 % 75 .9 % 77 .9 % 79 .9 % 80 .0 % 82 .0 % 84 .0 % 85 .0 % 87 .0 % 89 .0 % 80 .1 % 82 .1 % 84 .1 % 85 .1 % 87 .1 % 89 .1 % 80 .2 % 82 .2 % 84 .2 % 86 .2 % 87 .2 % 89 .2 % 81 .3 % 82 .3 % 84 .3 % 86 .3 % 87 .3 % 89 .3 % 81 .4 % 82 .4 % 84 .4 % 86 .4 % 87 .4 % 89 .4 % 81 .5 % 82 .5 % 84 .5 % 86 .5 % 88 .5 % 89 .5 % 8 1 .6 % 8 3 .6 % 8 4 .6 % 8 6 .6 % 8 8 .6 % 8 9 .6 % 8 1 .7 % 83 .7 % 84 .7 % 86 .7 % 88 .7 % 86 .8 % 85 .9 % 93 .0 % 91 .1 % 90 .2 % 98 .2 % 97 .3 % 95 .4 % 7 7 .3 % 7 8 .3 % 7 0 .4 % 7 1 .4 % 7 2 .4 % 7 3 .4 % 7 5 .4 % 7 6 .4 % 7 7 .4 % 7 8 .4 % 7 0 .5 % 7 1 .5 % 7 2 .5 % 7 4 .5 % 7 5 .5 % 7 6 .5 % 7 7 .5 % 7 9 .5 % 7 0 .6 % 7 1 .6 % 7 2 .6 % 7 4 .6 % 7 5 .6 % 7 6 .6 % 7 7 .6 % 7 9 .6 % 7 0 .7 % 7 1 .7 % 7 2 .7 % 7 4 .7 % 7 5 .7 % 7 6 .7 % 7 8 .7 % 7 9 .7 % 7 0 .8 % 7 1 .8 % 7 3 .8 % 7 4 .8 % 7 5 .8 % 7 6 .8 % 7 8 .8 % 7 9 .8 % 7 0 .9 % 7 1 .9 % 7 3 .9 % 7 4 .9 % 7 5 .9 % 7 6 .9 % 7 8 .9 % 7 9 .9 % 8 0 .0 % 8 2 .0 % 8 3 .0 % 8 4 .0 % 8 5 .0 % 8 7 .0 % 8 8 .0 % 8 9 .0 % 8 0 .1 % 8 2 .1 % 8 3 .1 % 8 4 .1 % 8 5 .1 % 8 7 .1 % 8 8 .1 % 8 9 .1 % 8 0 .2 % 8 2 .2 % 8 3 .2 % 8 4 .2 % 8 6 .2 % 8 7 .2 % 8 8 .2 % 8 9 .2 % 8 1 .3 % 8 2 .3 % 8 3 .3 % 8 4 .3 % 8 6 .3 % 8 7 .3 % 8 8 .3 % 8 9 .3 % 8 1 .4 % 8 2 .4 % 8 3 .4 % 8 4 .4 % 8 6 .4 % 8 7 .4 % 8 8 .4 % 8 0 .5 % 8 1 .5 % 8 2 .5 % 8 3 .5 % 8 5 .5 % 8 6 .5 % 8 7 .5 % 8 8 .5 % 8 0 .6 % 8 1 .6 % 8 2 .6 % 83 .6 % 85 .6 % 86 .6 % 87 .6 % 88 .6 % 80 .7 % 81 .7 % 8 2 .7 % 8 4 .7 % 8 5 .7 % 8 6 .7 % 8 2 .8 % 8 9 .8 % 8 5 .9 % 9 1 .0 % 9 8 .0 % 9 4 .1 % 9 0 .2 % 9 7 .2 % 7 2 .8 % 7 3 .8 % 7 3 .8 % 7 4 .8 % 7 5 .8 % 7 6 .8 % 7 7 .8 % 7 8 .8 % 7 8 .8 % 7 9 .8 % 7 0 .9 % 7 1 .9 % 7 2 .9 % 7 3 .9 % 7 3 .9 % 7 4 .9 % 7 5 .9 % 7 6 .9 % 7 7 .9 % 7 8 .9 % 7 9 .9 % 7 9 .9 % 8 0 .0 % 8 1 .0 % 8 2 .0 % 8 3 .0 % 8 4 .0 % 8 4 .0 % 8 5 .0 % 8 6 .0 % 8 7 .0 % 8 8 .0 % 8 9 .0 % 8 9 .0 % 8 0 .1 % 8 1 .1 % 8 2 .1 % 8 3 .1 % 8 4 .1 % 8 5 .1 % 8 5 .1 % 8 6 .1 % 8 7 .1 % 8 8 .1 % 8 9 .1 % 8 0 .2 % 8 0 .2 % 8 1 .2 % 8 2 .2 % 8 3 .2 % 8 4 .2 % 8 5 .2 % 8 5 .2 % 8 6 .2 % 8 7 .2 % 8 8 .2 % 8 9 .2 % 8 0 .3 % 8 1 .3 % 8 1 .3 % 8 2 .3 % 8 3 .3 % 8 4 .3 % 8 5 .3 % 8 6 .3 % 8 6 .3 % 8 7 .3 % 8 8 .3 % 8 9 .3 % 8 0 .4 % 8 1 .4 % 8 1 .4 % 8 2 .4 % 8 3 .4 % 8 4 .4 % 8 5 .4 % 8 6 .4 % 8 7 .4 % 8 7 .4 % 8 8 .4 % 8 9 .4 % 8 0 .5 % 8 1 .5 % 8 2 .5 % 8 2 .5 % 8 3 .5 % 8 4 .5 % 8 5 .5 % 8 6 .5 % 8 7 .5 % 8 7 .5 % 8 8 .5 % 8 9 .5 % 8 0 .6 % 8 1 .6 % 8 2 .6 % 8 3 .6 % 8 3 .6 % 8 4 .6 % 8 5 .6 % 8 6 .6 % 8 7 .6 % 8 8 .6 % 8 8 .6 % 8 9 .6 % 8 0 .7 % 8 1 .7 % 8 2 .7 % 8 3 .7 % 8 3 .7 % 8 4 .7 % 8 9 .7 % 8 3 .8 % 8 7 .8 % 8 1 .9 % 8 5 .9 % 9 0 .0 % 9 4 .0 % 9 8 .0 % 82 % .6 82 % .7 82 % .7 82 % .8 82 % .8 82 % .8 82 % .9 82 % .9 83 % .0 83 % .0 83 % .1 83 % .1 83 % .1 83 % .2 83 % .2 83 % .3 83 % .3 83 % .3 83 % .4 83 % .4 83 % .5 83 % .5 83 % .6 83 % .6 83 % .6 83 % .7 83 % .7 83 % .8 83 % .8 83 % .9 83 % .9 83 % .9 84 % .0 84 % .0 84 % .1 84 % .1 84 % .1 84 % .2 84 % .2 84 % .3 84 % .3 84 % .4 84 % .4 84 % .4 84 % .5 84 % .5 84 % .6 84 % .6 84 % .7 84 % .7 84 % .7 84 % .8 84 % .8 84 % .9 84 % .9 84 % .9 85 % .0 85 % .0 85 % .1 85 % .1 85 % .2 85 % .2 85 % .2 85 % .3 85 % .3 85 % .4 85 % .4 85 % .5 85 % .5 85 % .5 85 % .6 85 % .6 85 % .7 85 % .7 85 % .7 85 % .8 85 % .8 85 % .9 85 % .9 86 % .0 86 % .0 86 % .0 86 % .1 86 % .1 86 % .2 86 % .2 86 % .3 86 % .3 86 % .3 86 % .4 86 % .4 86 % .5 86 % .5 86 % .5 86 % .6 86 % .6 86 % .7 86 % .7 86 % .8 86 % .8 88 .6 % 89 .6 % 89 .6 % 80 .7 % 80 .7 % 81 .7 % 81 .7 % 87 % .1 87 % .2 87 % .2 87 % .3 87 % .5 87 % .7 87 % .9 88 % .1 88 % .3 88 % .5 88 % .7 88 % .9 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 % 8 1 .7 %

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For calculating the Impact of Hedging we have taken different slots if the company

If the company Hedge 0% of the total amount at the time taking loan If the company Hedge 10% of the total amount at the time taking loan If the company Hedge 20% of the total amount at the time taking loan If the company Hedge 30% of the total amount at the time taking loan If the company Hedge 40% of the total amount at the time taking loan If the company Hedge 50% of the total amount at the time taking loan If the company Hedge 60% of the total amount at the time taking loan If the company Hedge 70% of the total amount at the time taking loan If the company Hedge 80% of the total amount at the time taking loan If the company Hedge 90% of the total amount at the time taking loan If the company Hedge 100% of the total amount at the time taking loan

9.b Feasible region

55.00 55.10 55.20 55.30 55.40 55.50 55.60 8.46% 8.50% 8.54% 8.58% 8.63% 8.67% 8.71% 8.48% 8.52% 8.56% 8.60% 8.64% 8.67% 8.71% 8.51% 8.54% 8.58% 8.61% 8.64% 8.68% 8.71% 8.53% 8.56% 8.59% 8.62% 8.65% 8.68% 8.71% 8.56% 8.58% 8.61% 8.63% 8.66% 8.69% 8.71% 8.58% 8.60% 8.63% 8.65% 8.67% 8.69% 8.71% 8.61% 8.63% 8.64% 8.66% 8.68% 8.69% 8.71% 8.63% 8.65% 8.66% 8.67% 8.68% 8.70% 8.71% 8.66% 8.67% 8.68% 8.68% 8.69% 8.70% 8.71% 8.68% 8.69% 8.69% 8.70% 8.70% 8.71% 8.71% 8.71% 8.71% 8.71% 8.71% 8.71% 8.71% 8.71%

9.5 Interpretation:
From all the tables of different percentage of hedging total summary tables yellow region is best feasible region. Ranges from 55.00 to 55.60 are most suitable range 8.71 because beyond from this range there is no use of hedging.

44

If Forwards are better than 56.50 than only it will be beneficial If Rupee depreciates more than 55.60 than then keeping the position will increase the cost.

Chapter 10
FOREX Trend Analysis
10.1 Introduction
The world of investment is flooded with excellent ideas of growing your money, but you are required to make use of geometrical patterns, diagrams, statistical analysis and other similar tools to reach a definite conclusion for efficient investments. The hugest trading market called forex is also not spared from in-depth study of market trends to earn profits and avert losses. Forex trend lines serve the purpose, as these patterns help to extract most rewarding information and plan your course of action for investing in various currencies.

Usefulness of Forex Trend Lines

The forex trend lines are helpful in introducing the most vital entity required by an investor and this entity is called information. How can one expect to make worthy investment, without adjudging the highs and lows existing in the market? Here is the list of most prominent benefits of forex trend lines:

These lines help to depict the support and resistance levels, which are of great importance in deciding the sale or purchase of various investments.

The trend lines help the investors to decide their entry and exit points to the forex trading market. These patterns make you familiar about nature of forex market; the sharp turns taken by trends and unwarned movements of different investments.

45

In a nutshell, these lines fuel technical analysis of this investment market, which is certainly the most appreciable tool for making an investment.

10.2 Important Types of Forex Trend Lines The forex trend lines are available in different popular forms, as summarized below: Simple trend lines consist of straight lines drawn vertically, horizontally as well as diagonally. Fibonacci trend lines have gained popularity in recent times and are excellent tools of understanding current market trends in forex trading. There are different variations of these lines in the form of Fibonacci Arc, Fibonacci Fan and Fibonacci Retrenchment. Pivot trend lines are drawn on the basis of fluctuations in the market during previous time frames. Speed trend lines are similar to Fibonacci trend lines, with the only numbers with calculations by thirds. replacement of Fibonacci

10.3 Trend analysis of forex market from 1 January 2009 to 1 June 2009

Time
1/1/2009 1/2/2009 1/3/2009 1/4/2009 1/5/2009 1/6/2009 1/7/2009 1/8/2009 1/9/2009 1/10/2009 1/11/2009 1/12/2009 1/13/2009 1/14/2009

Rate Trend
49.9002 50.095 49.8918 49.655 49.655 49.52 49.6709 49.7595 50.255 49.7903 49.555 49.5555 49.7973 50.0963

49.77696 50.06863 49.78256 49.79137 49.78475 49.77321 49.77205 49.75277 49.76005 49.73516

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1/15/2009 1/16/2009 1/17/2009 1/18/2009 1/19/2009 1/20/2009 1/21/2009 1/22/2009 1/23/2009 1/24/2009 1/25/2009 1/26/2009 1/27/2009 1/28/2009 1/29/2009 1/30/2009 1/31/2009 2/1/2009 2/2/2009 2/3/2009 2/4/2009 2/5/2009 2/6/2009 2/7/2009 2/8/2009 2/9/2009 2/10/2009 2/11/2009 2/12/2009 2/13/2009 2/14/2009 2/15/2009 2/16/2009 2/17/2009 2/18/2009 2/19/2009 2/20/2009 2/21/2009 2/22/2009 2/23/2009 2/24/2009 2/25/2009 2/26/2009 2/27/2009 2/28/2009 3/1/2009 3/2/2009 3/3/2009 3/4/2009 3/5/2009 3/6/2009 3/7/2009

49.9717 50.0063 49.5689 49.505 49.505 49.4202 49.8541 49.9315 49.6635 49.7772 49.685 49.685 49.7264 49.5385 49.3835 49.4441 49.432 49.7295 49.73 49.5849 49.2849 48.9808 49.1162 48.9725 49.28 49.28 48.974 49.04 49.0957 49.0802 49.0117 49.255 49.255 49.0957 49.7212 50.2348 50.1322 50.1789 50.685 50.685 50.1541 50.167 50.1797 50.4739 51.1138 51.975 51.975 52.1604 52.2004 51.93 51.8575 51.6796

49.72541 49.74250 49.75246 49.74382 49.71537 49.68205 49.63414 49.62454 49.61892 49.63619 49.66002 49.63932 49.58958 49.53706 49.48622 49.43141 49.40025 49.36592 49.32249 49.29607 49.26927 49.24221 49.18699 49.15045 49.12508 49.11052 49.16748 49.25352 49.34273 49.41188 49.51995 49.65157 49.73727 49.81968 49.90425 50.01673 50.15972 50.36895 50.59043 50.77806 50.92926 51.06755 51.19668 51.27318 51.39934 51.56633 51.73795 51.86763 52.01342 52.14212 52.10915 52.18342

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3/8/2009 3/9/2009 3/10/2009 3/11/2009 3/12/2009 3/13/2009 3/14/2009 3/15/2009 3/16/2009 3/17/2009 3/18/2009 3/19/2009 3/20/2009 3/21/2009 3/22/2009 3/23/2009 3/24/2009 3/25/2009 3/26/2009 3/27/2009 3/28/2009 3/29/2009 3/30/2009 3/31/2009 4/1/2009 4/2/2009 4/3/2009 4/4/2009 4/5/2009 4/6/2009 4/7/2009 4/8/2009 4/9/2009 4/10/2009 4/11/2009 4/12/2009 4/13/2009 4/14/2009 4/15/2009 4/16/2009 4/17/2009 4/18/2009 4/19/2009 4/20/2009 4/21/2009 4/22/2009 4/23/2009 4/24/2009 4/25/2009 4/26/2009 4/27/2009 4/28/2009

52.325 52.325 52.3981 51.8655 52.3691 52.7869 51.5464 52.9405 52.94 52.5264 52.473 52.4997 51.8076 51.5785 52.195 52.195 51.8337 51.6914 51.8867 51.6635 51.6457 51.72 51.72 52.1743 50.7614 51.7475 51.2055 50.7662 51.175 51.175 50.7646 50.6547 50.8263 50.5782 50.4963 50.6 50.6 50.31 50.1267 50.1268 49.9952 50.1322 50.61 50.61 50.5737 50.8315 50.809 50.6763 50.2855 49.7018 50.54 50.5189

52.24338 52.26846 52.31023 52.35963 52.36948 52.31205 52.30205 52.28643 52.28398 52.23185 52.16261 52.17162 52.07202 51.97817 51.91614 51.89316 51.75945 51.75482 51.72613 51.61622 51.53776 51.48709 51.41580 51.32103 51.25663 51.17452 51.08038 50.99423 50.87313 50.83841 50.71373 50.63075 50.57145 50.49123 50.44777 50.43588 50.42965 50.43005 50.44780 50.46165 50.43745 50.36836 50.38605 50.41622 50.47207 50.51016 50.50575 50.47532 50.47378 50.47504 50.41323 50.33041

48

4/29/2009 4/30/2009 5/1/2009 5/2/2009 5/3/2009 5/4/2009 5/5/2009 5/6/2009 5/7/2009 5/8/2009 5/9/2009 5/10/2009 5/11/2009 5/12/2009 5/13/2009 5/14/2009 5/15/2009 5/16/2009 5/17/2009 5/18/2009 5/19/2009 5/20/2009 5/21/2009 5/22/2009 5/23/2009 5/24/2009 5/25/2009 5/26/2009 5/27/2009 5/28/2009 5/29/2009 5/30/2009 5/31/2009 6/1/2009 6/2/2009 6/3/2009 6/4/2009 6/5/2009 6/6/2009 6/7/2009 6/8/2009 6/9/2009

50.8528 50.4904 50.0749 50.2144 50.59 50.59 50.028 49.7323 49.6689 49.2368 49.2611 49.7 49.7 49.5963 49.733 49.8189 50.0862 49.7994 50.175 50.175 48.7797 47.9055 47.7447 47.6252 47.3133 47.625 47.625 47.4849 47.7083 47.7874 47.9166 47.2144 47.685 47.685 47.2155 47.1551 46.9263 47.3336 47.3166 47.905 47.905 47.7299

50.25292 50.17225 50.13835 50.07373 50.01074 49.91408 49.85582 49.83613 49.82627 49.76545 49.73353 49.74484 49.67156 49.53592 49.42114 49.29530 49.11171 48.95209 48.80045 48.62752 48.46517 48.28834 48.14351 47.91577 47.72423 47.64002 47.58695 47.54159 47.48783 47.48939 47.46567 47.48721 47.51952 47.52118 47.49900 47.46104 47.48570 47.46356 47.43588 47.46736 47.51940 47.63802

49

46.5

47.5

48.5

49.5

50.5

51.5

52.5

53.5

10.5 Interpretation

10.b Graph showing FOREX trend line

Trend change with respect to rate

Rate Trend

From the trend line we can forecast the trend in FOREX market.

1/ 5/ 20 09 1/ 12 /2 00 9 1/ 19 /2 00 9 1/ 26 /2 00 9 2/ 2/ 20 09 2/ 9/ 20 09 2/ 16 /2 00 9 2/ 23 /2 00 9 3/ 2/ 20 09 3/ 9/ 20 09 3/ 16 /2 00 9 3/ 23 /2 00 9 3/ 30 /2 00 9 4/ 6/ 20 09 4/ 13 /2 00 9 4/ 20 /2 00 9 4/ 27 /2 00 9 5/ 4/ 20 09 5/ 11 /2 00 9 5/ 18 /2 00 9 5/ 25 /2 00 9 6/ 1/ 20 09 6/ 8/ 20 09

50

Chapter 11 Conclusions & Interpretations

11.1 Conclusions
The Conclusions obtained after analysis are summarized below: The rupee is largely a bounded currency with very low levels of volatility and the current trend establishes that the rupee is expected to depreciate

against the US dollar in the short run If Rupee depreciates more than 55.60 then keeping the open position will increase the cost.

If Forwards are better than 56.50 than only it will be beneficial. Ranges from 55.00 to 55.60 are most suitable range (indicated by yellow region in hedging total summary tables) because annualized cost is restricted to a minimum of 8.71%. Beyond this range there is no use of hedging as it will only lead to increase in cost.

By varying strike rate, interest and time we get option premium Option premium is decreasing with strike rate while percentage change in premium is almost constant or very small change.

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Chapter 12 12.1 Suggestions & Recommendations

Based on the analysis it is suggested to Hedge open due to in nest year one to two year 50 % to 60 % hedging is suggested to get benefit of appreciation of rupee for the position left open and to avoid losses on Hedged portion due to depreciated in currency

To hedge through forward is suggested due to high volatility rate with respect to high premium rate

12.2 Limitations
Limitation of this project is as follows. 1. This project is totally based on secondary data from company site, annual report, reutor, Other site and company previous used data 2. Forex market transaction done by the large company it is not possible to use actual data of company 3. Forex data is so sensitive so we are not get opportunity to get work live data 52

Chapter 13 13.1 Annexure

1. Premium Calculation excel sheet. 2. Strike rate varying Calculation excel sheet. 3. Strike rate varying graph. 4. Time varying Premium Calculation excel sheet. 5. Time varying Premium Calculation graph. 6. Volatility calculation sheets. 7. Hedging calculations having following excel sheets If the company Hedge 0% of the total amount at the time taking loan If the company Hedge 10% of the total amount at the time taking loan If the company Hedge 20% of the total amount at the time taking loan If the company Hedge 30% of the total amount at the time taking loan If the company Hedge 40% of the total amount at the time taking loan If the company Hedge 50% of the total amount at the time taking loan If the company Hedge 60% of the total amount at the time taking loan If the company Hedge 70% of the total amount at the time taking loan If the company Hedge 80% of the total amount at the time taking loan

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If the company Hedge 90% of the total amount at the time taking loan If the company Hedge 100% of the total amount at the time taking loan Summary of all percentages hedging sheets.

8. Trend analysis of FOREX market excel sheet 9. Trend analysis of FOREX market graph

13.2 References
1. Glyn Holton, Value-at-Risk: Theory and Practice, Academic Press (2003). ISBN 978-0123540102 2.Kevin Dowd,Measuring Market Risk. John Wiley & Sons (2005) ISBN 978-0470013038 3.http://www.trade2win.com/boards/planning-risk-money-management/13258-risk-var-booksrecommendation.html 4. A b c Triennial Central Bank Survey (December 2007), Bank for International Settlements. 5. A b Annual FX poll (May 2008), Euro money. 7. Source: Euro money FX survey FX Poll 2008: The Euro money FX survey is the largest global poll of foreign exchange service providers.' 8. www.wikipedia.com 9. www.pfcindia.com 10. http://en.wikipedia.org/wiki/Value_at_risk 11. http://www.x-rates.com/d/USD/table.html 12. http://en.wikipedia.org/wiki/Trend_analysis

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