Export income - Dollar to Rupee Exchange rate

Hello,
A friend of mine is involved in export oriented business and thus has dollar revenue.
What is the best way to hedge this incoming revenue and get the quote directly from the NSE exchange rather than the bank provided rate which is usually lower than the exchange traded rate.
To clarify , here's the example.
We are expecting $50K of sales revenue to come in Sept 2010. To hedge against the risk of currency fluctuation we would like to sell the Sept futures contract at a rate that's on NSE (47.77 per dollar) rather than 47.34 that a nationalized bank is quoting.
Is there a way to get the best price by trading the futures contract on NSE directly?
Any other alternative?

Thanks
Sky

You would have to open an account with a broker like Kotak securities/ICICI sec/RKGlobal/Anagram capital etc. to trade currency derivatives directly on NSE or MCX-sx. If you already have a account with any of these brokers then you only have to fill a simple form for activation of currency derivatives in your account. most brokers will charge only rs 100 as stamp charges for currency derivatives activation form.

Now somethings you should know or keep in mind for currency derivatives trading.
1. Brokerage per lot (per 1000 dollars) - this varies from broker to broker like kotak charges minimum 10 rs per lot applicable on both sides i.e. buy and sell and anagram capital charges between 5 to 10 per lot based on monthly volumes traded by you. RKglobal I heard was giving the lowest brokerage per lot of 1 rs on buy and 1 rs on sell but only on MCX-SX and not NSE.

2. Liquidity- If you have to trade big amounts then you would have to look at the daily and monthly liquidity in your instrument. for the current month usd/inr futures both nse and mcx-sx have about similar trading volume per day but other than that mcx-sx has more daily volume than Nse in every else month.

3. For the reason of more liquidity if you want to trade on MCX-sx than NSE than you have to choose a broker carefully as not all brokers allow both NSE and mcx-sx platform. for ex- kotak allows trade only in nse and not in mcx-sx whereas RKGlobal provides MCX-sx only and not NSE currency segment.

4. Margin money per lot- this varies with broker and broker and also varies on daily basis. for ex- kotak blocks more than 3 thousand rupees per lot currently on usd/inr futures whereas Anagram capital charges about 1600 rs per lot.

For daily charts on Nse and mcx-sx currency futures see the below links

http://www.nseindia.com/marketinfo/fxTracker/fxTracker.jsp
http://www.mcx-sx.com/sitepages/mkt_data.aspx?rander=4

BTW, 50 thousand dollar means 50 lots of usd/inr (50 * 1000) so daily liquidity won't be a major problem here and you could use any exchange(nse or mcx-sx) for trading.

smartboy1jan1982,
Thanks for the info. I understand the forex account opening part and trading the required number
of contracts in USD/INR like you said. What I don't understand is the following

1. Where does my export payment come to ? which bank account or the forex trading account?
2. How do i use the USD to make the delivery of the sold USD at the time of delivery?

We are in INDIA and don't have a US bank account ...do we need one? not sure..does it matter?


Thanks for your help

Sky

Buddy, I am not into hedging. I just trade futures, both Nifty and usd/inr. So don't depend on my word too much and get some one with more knowledge about your business needs as far as forex is concerned. However I will try to answer your queries with the best of my abilities and knowledge, which are limited.

1. Your forex payment in dollars will have to come to your bank account only. I think you meant currency derivatives trading account and not forex trading account.

2. usd/inr futures are compulsorily cash setteled in rupees at expiry date's price at the RBI reference date at 12 pm noon , which will be on the september futures expiry date. You cant take up or give delivery of dollars on NSE or mcx-sx.

3. Cant say about US bank account requirement with absolute surety but I think it shouldn't be compulsory for you. Your indian bank account should be fine for the dollars payment. But I don't think the bank will credit your account in dollars but in indian rupees converted at that days exchange rate.

Hedging means to take two exactly different positions in two different markets, where one acts as a insurance to the other counter position. So it doesn't matter if the price goes up or down. Means you are neutral to price movement.

Just a piece of advice for you if you don't mind my saying. Do email or contact some of the brokers like anagram capital/edelweiss securities or your current broker to help you better understand hedging and other details you need to know. But remember I don't have a account in anagram or edelweiss so don't take that as a recommendation from me for you to choose them as your broker. When choosing a broker or for anything else in life, it is best to look around for more options than you come across. Go talk to all of the big brokers you have in your city and clear all your questions from them.

brother, thanks for sharing this info. Do you mind sharng your contact info so that we can discuss this better
thanks a lot
sky

You can contact me at my email id which is [email protected] or alternatively you can even send me a private message here @traderji