Currency Hedging at HCL Tech
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The report also mentioned that the loss due to cancellation would be debited in the respective quarters of maturity as against the earlier policy of booking losses in the quarter of cancellation. The report expressed the view that the new policy was fair and in accordance with the US GAAP and that it reduced earnings volatility.
Some analysts held the opposite view. HCL Tech had unwound the covers for the currency forward, putting them in an un-hedge position, as company inflows would be converted at the spot rate. This fundamentally defeated the very purpose of the company’s hedging policy, they said. With the cancellation of the currency hedge, the company might benefit if the rupee continued to further depreciate. Analysts expressed concern about the company's position should the rupee appreciate further against the US dollar. They even opined that this cancellation raised the basic question of how HCL Tech could hedge or manage the currency exposure as most of the revenue came in foreign currency terms.
5] Shivani Shinde, "HCL Tech Plans to Cancel Rs 3,000 cr Worth of Hedges," www.business-standard.com/india/storypage.php?autono=358290, May 16, 2009.
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