The Reserve Bank of India has amended regulation 4 of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, to allow an Indian resident to enter into a foreign exchange derivative contract in order hedge an exposure to risk or otherwise, in respect of a transaction permissible under the Foreign Exchange Management Act, 1999. However, such contracts must be entered into in accordance with schedule I of the regulations.
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Schedule I has been amended to include “Writing of standalone options against underlying exposure”, which allows a person resident in India to enter into cross-currency option contracts (not involving the rupee as one of the currencies) and/or foreign currency-rupee contracts against an underlying foreign exchange exposure in respect of a transaction for which sale and/or purchase of foreign currency is permitted under the act.
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