Master Direction – Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022
This Master Direction outlines the guidelines for hedging of commodity price risk and freight risk in overseas markets.
Eligible Commodities: The direction applies to commodities listed in the schedule, including but not limited to, agricultural products, metals, and energy products.
Permitted Products: The direction permits the use of various financial products, including options, futures, forwards, and swaps, to hedge commodity price risk and freight risk.
Hedging of Commodity Price Risk: The direction outlines the guidelines for hedging commodity price risk, including the requirement for authorized dealers to ensure that the hedging products are aligned with the underlying exposure.
Hedging of Freight Risk: The direction permits the hedging of freight risk, including the use of freight derivatives and other permitted products.
Operational Guidelines: The direction outlines various operational guidelines, including the requirement for authorized dealers to maintain records, ensure compliance with Know Your Customer (KYC) norms, and adhere to anti-money laundering (AML) regulations.
Standby Letters of Credit (SBLC) / Guarantees: The direction outlines the guidelines for the use of SBLCs and guarantees in relation to hedging transactions.
Realisation and Repatriation of Foreign Exchange: The direction outlines the guidelines for the realisation and repatriation of foreign exchange proceeds from hedging transactions.
Reporting to Reserve Bank: The direction requires authorized dealers to submit regular reports to the Reserve Bank of India on their hedging activities.
Repeal: The direction repeals the earlier Master Direction on hedging of commodity price risk and freight risk in overseas markets.
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