Master Direction – Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022.

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022. (ii) These Directions shall come into force on December 12, 2022. 2. Definitions (i) Hedging - The activity of undertaking a derivative transaction to reduce an identifiable and measurable risk. For the purpose of these directions, the relevant risks are commodity price risk and freight risk. (ii) Eligible entities - Eligible entities refers to residents other than Individuals. (iii) Direct Exposure to Commodity Price Risk - An eligible entity will be said to have direct exposure to commodity price risk if (a) It purchases/sells a commodity (in India or abroad) whose price is fixed by reference to an international benchmark; or (b) It purchases/sells a ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....n and put option) (c) Swaps (ii) Structured Products (a) Products which are combination of either cash instrument and one or more generic products (b) Products which are combination of two or more generic products 5. Hedging of commodity price risk (i) Eligible entities having exposure to commodity price risk for any eligible commodity may hedge such exposure in overseas markets using any of the permitted products. (ii) Eligible entities having exposure to price risk of gold may hedge such exposure only on exchanges in the International Financial Services Centre (IFSC) recognised by the International Financial Services Centres Authority (IFSCA). 6. Hedging of freight risk: Eligible entities having exposure to freight risk may he....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....fully owned subsidiaries of such entities or (c) unlisted entities whose net worth is higher than INR 200 crore, subject to the condition that such product are used for the purpose of hedging as defined under these directions. (iv) All payments/receipts related to hedging of exposure to commodity price risk and freight risk shall be routed through a special account with the bank for this purpose. (v) Banks shall keep on their records full details of all hedge transactions and related remittances made by the entity. (vi) Banks shall obtain an annual certificate from the statutory auditors of the entity confirming that the hedge transactions and the margin remittances are in line with the exposure of the entity. The statutory auditor shall....