Financial Risk Manager

Ways of Financial and Risk Management

Foreign Exchange Risk
Thursday, June 11, 2009

Query from Emad Khan

We are importing goods from China. My understanding is that at the moment there is no hedging method available in Pakistan. I heard that we can hedge the risk by entering into forward cover in Dubai through our branch office. We will make payment directly to China in our supplier bank account but relevant hedging instrument covers our risk. The branch will transfer the loss or gain on close out to HO in Pakistan.

Is it true? If yes then whats the methodology of the above and how can we do it.

Comment:

The only source of hedging such exchange rate risk is forward booking at some premium. Right now in Pakistan, State Bank of Pakistan has restricted the forward booking against imports as most of the companies are intentially used this facility fruadulently.

However, If a company has presence in middle east or some other foreign country then It can be entered in forward booking transaction through any bank in Pakistan which has presence in middle east or outside the country through showing Letter of Credit of imported supplies.

Labels: Treasury