The rupee falls 8%. A global allocation fund has Rs 1,000 crore: 25% unhedged US equity, 20% domestic IT exporters whose earnings rise 6% for an 8% fall, 15% oil-importing sectors that fall 5%, and 40% domestic bonds. Estimate the net effect.

The fund gains about Rs 26 crore, 2.6%, before second-round effects, and about Rs 22 crore if bond yields rise a quarter point. The US sleeve gains about Rs 21.7 crore and exporters Rs 12 crore, while oil importers lose Rs 7.5 crore. The fund is net long the dollar. If the rupee fell because of a global sell-off, US shares would fall too and the gain could disappear.

A family whose son works in New Jersey feels richer the week the rupee falls: the same dollar transfer buys more groceries in Nagpur. The family that imports a car feels poorer. Every sleeve in the fund is one of those two families, or neither. Unhedged US shares are the son's salary: worth more rupees. IT exporters earn in dollars and pay most costs in rupees, so their profits rise. Oil importers pay in dollars for a raw material they sell in rupees, so their margins shrink. Domestic bonds carry no direct currency exposure at all.

Percentages are not symmetric. If a rupee is worth 8% fewer dollars, then a dollar is worth more than 8% more rupees, because the base has shrunk. A dollar that cost Rs 100 now costs Rs 108.70, so the US sleeve's rupee value rises 8.7%, not 8%. The gap is small here, Rs 1.7 crore, but it compounds with the size of the move and interviewers listen for whether you notice it.

A weaker rupee makes imports dearer, which can push up inflation and lead the central bank to hold rates higher. If bond yields rise a quarter point, a 4-year duration costs about 1% of the Rs 400 crore sleeve, Rs 4 crore, trimming the gain to about Rs 22 crore. Treat that move as an assumption to vary, not a forecast. The bigger question is why the rupee fell. If it fell because global investors were selling risk everywhere, US shares may be falling in dollars at the same time. A 10% fall in US shares alongside the rupee's 8% turns the US sleeve into a loss of about Rs 5.4 crore, and the whole fund's result to about Rs -4.9 crore.

First describe it: the fund is net long the dollar through the US sleeve and the exporters, partly offset by the importers. That position worked as a cushion here, which is the usual argument for leaving some foreign equity unhedged for an Indian investor: the rupee tends to weaken in bad times for India. Whether to hedge depends on the mandate. If investors want global equity returns without currency swings, hedge part of the US sleeve, remembering that the cost of a rupee-dollar hedge broadly reflects the gap between the two countries' interest rates. Confirm the current forward cost before quoting it. Report the estimate as a range, from a loss of about Rs 5 crore to a gain of about Rs 26 crore, not a single number.