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import portfolio unhedged

By what options can importers hedge to protect themselves from currency fluctuations.?

Requesting you to explain the meaning of following paragraph from yestderday's Hindu.

"'One of the downside risks of the rupee’s recent rising spree is that a large part of the import portfolio is unhedged. Hedging would have helped companies with foreign currency exposure to shield themselves from fluctuations in rates. According to State Bank of India’s estimate, at least 40% of the importers’ portfolio is unhedged. In 2013, when the rupee was tumbling, the unhedged position of exporters was seen as a major worry for banks. Now, it is mandated that banks have to set aside capital, in terms of provision, if their corporate clients don’t hedge their portfolio.""

Q1 -what is import portfolio?

Q2- Are they saying that using tools like options, put , forwards etc investors must protect their investment. If yes, then do they have to inform banks also?

Q3- Kindly summarize the above para.

Thank you very much in advance
IPS in making
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Comments

  • Hedging is simple terms refers to an Insurance policy to cover the risk associated with buying or holding any asset.

    Import portfolio here refers to the companies which are involve in Importing Goods in India, including currency. Thus they are exposed to currency fluctuations.
    According to the article, most of the importers are not hedged or do not have any insurance policy against a variation in exchange rates which is a risk they are taking.
    We must note that hedging eats away portions from profits ie, it is not free, thus the reluctance on behalf of Importers to hedge.

    Any asset like foodgrains can have an underlying derivative which can be bought to hedge against it.
    Geography Optional.
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  • Thanks @arunshourie1989 very much for help.
    IPS in making
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  • thank you, Arun.
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