3. Profit/Loss on Account of Forex
Exposure
• The Company enters into Foreign Exchange
Forward Contracts and Currency Option Contracts
to offset the foreign currency risk arising from the
amounts denominated in currencies other than
the Indian rupee.
• The counter party to the Company’s foreign
currency Forward Contracts and Currency Option
Contracts is generally a bank.
• These contracts are entered into to hedge the
foreign currency risks of certain forecasted
transactions.
4. The following are the outstanding GBP: USD Currency Exchange Contracts entered
into by the company which have been designated as Cash Flow Hedges as at March
31, 2010:
5. The following are the outstanding GBP: USD Currency Exchange
Contracts entered into by the company which have been
designated as Cash Flow Hedges as at March 31, 2010:
7. Hedging Policy of the company
Foreign currency transactions:
• Transactions in foreign currencies are recorded at
the exchange rates prevailing on the date of
transaction. Monetary items are translated at the
year end rates.
• The exchange difference between the rate
prevailing on the date of transaction and on the
date of settlement as also on translation of
monetary items at the end of the year/period is
recognised as income or expense
8. Split of Revenue
During the year, 58.6% of the Company’s revenue came from Europe, 29.4%
came from USA and 12.0% came from Rest of the World (ROW) in which 4.6
% came from India.
As the country operates majorly in UK and rest of Europe, the 2 currencies
which dominate are GBP and EURO.
10. Oracle
• Foreign currency exchange rates in
comparison to the U.S. Dollar weakened by
10%, the amount of cash, cash equivalents
and marketable securities are reported in U.S.
Dollars which increased by approximately
$695 million, assuming constant foreign
currency cash, cash equivalent and marketable
securities balances.
12. Hedging Policy of the company
• Company transact business in various foreign
currencies and are subject to risks associated
with the effects of certain foreign currency
exposures.
• They have a program that primarily utilizes
foreign currency forward contracts to offset
these risks associated with foreign currency
exposures.
14. Foreign Currency Translation Risk
• Fluctuations in foreign currencies impact the
amount of total assets and liabilities that is
reported for the foreign subsidiaries upon the
translation of these amounts into U.S. Dollars.
• In particular, the amount of cash, cash
equivalents and marketable securities that is
reported in U.S. Dollars for a significant portion of
the cash held by these subsidiaries is subject to
translation variance caused by changes in foreign
currency exchange rates as of the end of each
respective reporting period
15. Foreign Currency Net Investment Risk
• Company hedge net assets of their international
subsidiaries using foreign currency forward
contracts to offset the translation and economic
exposures related to their foreign currency-based
investments in these subsidiaries.
• These contracts have been designated as net
investment hedges pursuant to ASC 815. They
entered into these net investment hedges for all
of fiscal 2009 and the majority of fiscal 2010
16. Conclusion
• Derivative use for hedging is only to increase global
linkages and volatile exchange rates. Firms need to look
at instituting a sound risk management system and also
need to formulate their hedging strategy that suits
their specific firm characteristics and exposures.
• In India, regulation has been steadily eased and
turnover and liquidity in the foreign currency derivative
markets has increased, although the use is mainly in
shorter maturity contracts of one year or less. Forward
and option contracts are the more popular
instruments.
