The Rupee has hit close to Rs. 59 to a US Dollar, with the RBI rate at 58.92 and looking worse. In the last two days the dollar has appreciated by over 3.5%. This seems to be because FIIs have pulled out of the debt market . But it is a silly conclusion to think that because FIIs are exiting debt and are short term in nature, we should ban them or control them somehow. We should infact have encouraged more of them – so that when some of them are sellers, some others would be in to buy. Read: Let Foreigners Buy Our Debt . The article mentions the power of using non-deliverable forwards (NDFs) in Singapore and other places to offset the risk of buying rupee bonds, and then exiting the market with a small profit on the NDF which has moved from a discount to a premium. Now for someone with a trading background, this is not really a problem – the risk was taken in Indian rupees, and they hedged out the exposure abroad because RBI has strict rules about who can hedge risk in India and how much. The problem is not the NDF market!…
[via Capital Mind]
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