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    Question

    According to the RBI’s revised guidelines on hedging foreign exchange risk, a user can enter into foreign exchange derivative contracts without underlying exposure within a prescribed limit. Which of the following best describes the documentation required for users seeking to take positions beyond USD 100 million?

    A The user must submit a letter of credit for the entire notional value of the derivatives. Correct Answer Incorrect Answer
    B The user must provide audited financial statements showing the contracted exposure Correct Answer Incorrect Answer
    C The user must submit a board resolution authorizing foreign exchange transactions beyond the limit. Correct Answer Incorrect Answer
    D The user must provide a quarterly risk exposure report to the RBI via the designated Authorized Dealer Correct Answer Incorrect Answer
    E The user must ensure that any unhedged positions are closed within 30 days of reaching the USD 100 million limit. Correct Answer Incorrect Answer

    Solution

    The circular "Risk Management and Inter-Bank Dealings – Hedging of Foreign Exchange Risk" requires users who take positions beyond USD 100 million to submit a quarterly risk exposure report to the RBI through their Authorized Dealer.

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