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Saturday, January 8, 2011

Financial Management & Power Sector Series_Hedging

The policy states that "Foreign exchange variation risk shall not be a pass through. Appropriate costs of hedging and swapping to take care of foreign exchange variations should be allowed for debt obtained in foreign currencies"

This seems fair. The producer is paid to hedge his risks to take care of forex variations. Imperfect hedging will be at his expense/profit. Given this, power companies are prime candidates for derivatives in this regard. 

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