A spice exporter receives USD 4 million and EUR 1.5 million in each of the next three quarters and calls after a sharp rupee fall. Build a 75%, 50%, 25% layered hedge with the given forwards, show the rupees locked, and say what you would and would not say about the rupee.

Sell USD 3 million, 2 million and 1 million forward at 84.10, 84.60 and 85.05, and EUR 1.125 million, 0.75 million and 0.375 million at 91.20, 91.90 and 92.60: that locks Rs 50.65 crore on dollars and Rs 20.62 crore on euros, Rs 71.28 crore in all. That is half of the Rs 142.86 crore the receipts are worth at forward rates, so a 5% move in the rupee changes the total by about Rs 3.6 crore rather than Rs 7.1 crore. Do not forecast the rupee; explain the policy.

A family planning three trips books next month's tickets in full, the one after half, and keeps the far trip flexible, because the far plans are the ones most likely to change. A layered hedge does the same with receipts: it sells forward 75% of the receipts three months out, 50% of those six months out and 25% of those nine months out, so the cover is heaviest where the cash flows are most certain. In amounts, that is USD 3 million, 2 million and 1 million, and EUR 1.125 million, 0.75 million and 0.375 million. Each slice is converted at its own forward rateThe exchange rate agreed today for a currency exchange on a future date. It is set by spot and the interest rate gap between the two currencies, not by a forecast., so the rupees locked are the amount times the forward.

Value everything at today's forwards and the receipts are worth Rs 142.86 crore. If the rupee ends 5% weaker than the forwards, the unhedged company gets Rs 150.00 crore and the layered one Rs 146.43 crore; if it ends 5% stronger, the unhedged company gets Rs 135.71 crore and the layered one Rs 139.28 crore. The layered hedge gives up half the upside in exchange for half the downside, a swing of Rs 3.58 crore either way instead of Rs 7.14 crore. A full hedge would remove the swing entirely and also remove any flexibility if a European order is delayed.

The CFO's second question is the one that tests a salesperson. Do not forecast the currency: say that the forwards are set by spot and the interest gap between the currencies, not by anyone's view, and that the hedge is a policy for protecting the budget rate, not a bet on the rupee. What you can say usefully is that after a sharp fall the forwards are at better levels for an exporter than they were last month, so a hedge placed now locks a rate the company's budget probably did not assume; that the layers can be rolled forward each quarter, adding a new 25% slice for the next period, so the company never has to call the turn; and that receipts that may slip should be covered with forwards that allow delivery within a window, because a forward without the underlying dollars becomes a speculative position.

Say the limits. The euro forwards are usually built from a dollar-rupee and a euro-dollar price, so their spreads are wider and should be checked; the hedge ratios are policy choices, not derived from anything; the 5% shocks are illustrations, not estimates; and the rules on what an exporter may hedge and how it must document the underlying exposure are set by the central bank and change, so the current framework should be confirmed before booking. The judgement: for Kesrika, with signed contracts and a budget to protect, the layered hedge is a defensible policy that keeps the conversation away from a forecast it should not be relying on.