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Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions

Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions - FEMA - 19 - Dated:- 12-3-2018 - RBI/2017-18/138 A.P. (DIR Series) Circular No. 19 March 12, 2018 To All Category - I Authorised Dealer Banks Madam / Sir, Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions Attention of Authorised Dealer Category - I (AD Category-I) banks is invited to regulation 6 and 6A of the Foreign Exchange Management (Foreign Exchange D .....

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hedging of commodity price risk and freight risk were released for comments on Jan 12, 2018. Based on the feedback to the draft directions, the Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions, 2018 have been finalized and are enclosed herewith. The revised directions shall come into force from April 1, 2018. 3. Residents hedging their commodity price risk and freight risk under a specific approval from RBI given under the approval route based on th .....

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on Comprehensive Guidelines on Foreign Exchange Derivatives and Overseas Hedging of Commodity Price and Freight Risks and the relevant appendices. iii. A. P. (DIR Series) Circular No.35 dated November 10, 2008 on Remittance related to Commodity Derivative Contract Issuance of Standby Letter of Credit / Bank Guarantee 5. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers concerned. 6. The directions contained in this circular have been .....

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powers conferred under Sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) hereby issues the Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions, 2018 dated March 12, 2018 (the Directions). 1. Short Title and commencement 1.1 These directions shall be referred to as the Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions, 2018 and they shall come into force on April 1, 2018 .....

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whose price is fixed by reference to an international benchmark ; or b. It purchases/sells a product (in India or abroad) which contains a commodity and the price of the product is linked to an international benchmark of the commodity. iv. Indirect Exposure to Commodity Price Risk - An eligible entity will be said to have indirect exposure to commodity price risk if it purchases/sells a product (in India or abroad) which contains the commodity and the price of the product is not linked to an int .....

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ms and precious stones) b. In case of indirect exposures to commodity price risk: Aluminum, Copper, Lead, Zinc, Nickel, and Tin. This list of eligible commodities would be reviewed annually. 4. Permitted Products - Permitted products refer to the following: a. Generic Products i. Futures and forwards ii. Vanilla options (call option and put option) iii. Swaps b. Structured Products i. Products which are combination of either cash instrument and one or more generic products ii. Products which are .....

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rice risk and freight risk overseas using permitted products and may remit outside India foreign exchange in respect of such transactions after satisfying themselves that : a. The entity has exposure to commodity price risk or freight risk, contracted or anticipated. b. The quantity proposed to be hedged and the tenor of the hedge are in line with the exposure. c. In case of OTC derivatives, the requirement to undertake OTC hedges is justified. d. In case of hedging using a benchmark price other .....

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r with non-bank entities which are permitted to offer such derivatives by their regulators. For this purpose, a list of acceptable jurisdictions shall be specified by FEDAI. iii. Structured products may be permitted to eligible entities who are (a) listed on recognized domestic stock exchanges or (b) fully owned subsidiaries of such entities or (c) unlisted entities whose net worth is higher than INR 200 crores, subject to the condition that such product are used for the purpose of hedging as de .....

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sure of the entity. The statutory auditor shall also comment on the risk management policy of the entity for hedging exposure to commodity price risk and freight risk and the appropriateness of the methodology to arrive at the quantum of these exposures. vii. Banks shall undertake immediate corrective action in case of any irregularity or misuse of these directions. All such cases should be reported to Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India. 8. Stan .....

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