The forex market is no longer about products that nobody understood. A new breed of business models help firms make sense of their currency exposure
Pankaj Sampath was a tense man at the turn of the last decade. A dealer in edible nuts and oil-seeds, Sampath also ran his own trading firm, Samson Trading Corporation. The rupee had appreciated by Rs. 3 in ten days and he had an export contract payment of $5 million. He was not sure if he should cover his positions as the direction of the rupee was difficult to predict. He knew that he would lose money. The question was how much.
He is taking technology based approach to his clients where he is managing their forex risks based on the data provided by his clients. An IT company with a strong treasury was taking readings from the Mecklai model since October 2008 for hedging. The company, which has $250 million of exports, realised that if they followed the model they would have saved $5 million on their positions. After looking at the results, the company moved to the Mecklai analytical model. Mecklai says that since 2007-2009, based on simulations, the model has done 3 percent better than the targets set by their clients.
(This story appears in the 30 April, 2010 issue of Forbes India. To visit our Archives, click here.)