An exporter expected USD 40 million of receipts over six months and hedged only 25% at Rs 84 because its treasurer expected the rupee to weaken. The rupee strengthened to Rs 80. Compute the shortfall, then analyse the failure: the policy, the authority, and what a collar with a Rs 82 floor would have saved.

Nalvanti ends Rs 12 crore short of its Rs 336 crore budget, and the failure was a market view dressed up as a hedge policy. The 25% sold forward landed on budget; USD 30 million converted at Rs 80 instead of 84. A policy allowing anything from 0% to 100% hedged gave one person authority to take a currency bet. A collar with a Rs 82 floor on the unhedged part would have saved Rs 6 crore while keeping upside to Rs 87.

The budget assumed every dollar at Rs 84, Rs 336 crore. USD 10 million sold forward at 84 brought Rs 84 crore, exactly on budget; USD 30 million at Rs 80 brought Rs 240 crore instead of Rs 252 crore, a Rs 12 crore shortfall. That is about 3.6% of the half year's export revenue, and for a components maker on thin margins it may be a large share of the half year's profit.

A shopkeeper who stops insuring his stock because he expects a quiet monsoon has not managed a risk; he has placed a bet on the weather. A hedge policy exists to protect the budget whatever the market does; a policy that lets the hedge ratio run from 0% to 100% on the treasurer's view turns the hedge into a position. Three things failed together. The policy had no minimum hedge ratio for receipts that were highly likely to arrive. Authority sat with one person: nobody above the treasurer had to approve dropping to 25%. And the treasurer was judged against the spot rate rather than the budget, which rewards trying to beat the market instead of delivering the plan. Nobody set a review trigger either, such as revisiting the hedge if the rupee reached 82, while the rupee moved against the view for weeks.

A collar sets a floor and a cap: Nalvanti would receive at least Rs 82 and at most Rs 87 per dollar, with no premium because the cap pays for the floor. On the USD 30 million left unhedged, the collar would have lifted proceeds from Rs 80 to Rs 82 a dollar, saving Rs 6 crore, half the shortfall, while keeping the treasurer's upside up to Rs 87. It is the natural instrument for someone with a view who still has to protect a budget: it expresses the view inside a band the board has agreed.

Four changes, each aimed at a specific failure. A minimum hedge ratio that rises with certainty: for example, a high share for receipts under firm orders and a lower share for forecast sales, with any deviation approved by the CFO or a treasury committee. Instruments named in the policy, including collars, so a view can be expressed inside a floor. Performance measured against the budget rate, not spot. And a monthly report to the board of the unhedged exposure and its value at the current rate, so the size of the bet is visible while it can still be changed. The goal is not to stop the treasurer having views; it is to make sure a view can never put the budget at risk without someone above him agreeing.