The Reserve Bank of India tightened the norms for foreign exchange risk cover. The RBI mentioned that only companies with a networth of Rs 200 crore can use derivatives to hedge against risk of volatility in currency rates. The RBI had in February 2011 pegged the networth limit at Rs 100 crore while allowing corporates to hedge against exchange rate risks associated with trade transactions and external borrowings.
RBI stipulated that listed companies and their subsidiaries or joint ventures or associates having common treasury and consolidated balance sheet or unlisted companies with a minimum networth of Rs 200 crore can undertake cost reduction structures.
Forex derivatives are a product sold by banks to companies to help them hedge against risks of fluctuations in foreign exchange value and interest rates.
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