Categories: Banking

RBI Paper: Optimal hedge ratio for ECBs is at 63%

According to a Reserve Bank of India (RBI) Working Paper, the optimal hedge ratio for the External Commercial Borrowings (ECBs) raised by firms in India is estimated at 63 per cent for the periods of high volatility in the foreign exchange (forex/FX) market. An optimal hedge ratio is a ratio that implies the percentage of total asset or liability exposure that an entity ought to hedge against exchange rate fluctuations.

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According to the Paper, domestic economic activity and movements in the exchange rate of the Indian rupee are the two major factors influencing the ECBs issuance. Depreciation of the Indian rupee has an adverse impact on the issuance of ECBs in the short as well as long run.

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Sumit Arora

As a team lead and current affairs writer at Adda247, I am responsible for researching and producing engaging, informative content designed to assist candidates in preparing for national and state-level competitive government exams. I specialize in crafting insightful articles that keep aspirants updated on the latest trends and developments in current affairs. With a strong emphasis on educational excellence, my goal is to equip readers with the knowledge and confidence needed to excel in their exams. Through well-researched and thoughtfully written content, I strive to guide and support candidates on their journey to success.