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The topsy turvy dollar


Siddharth Sethi

September 29, 2008

Whow! The dollar is getting us crazy these days. It was at about 39 to an Indian rupee just 2 quarters ago. Now at the time of this post, it is at 47. Where does this leave us? Some of our friends have asked us how is this affecting us? Well, it is affecting us in a big way. Every rupee change in the dollar changes our top and bottom line. The bottom line is more affected, obviously.

However, this is no windfall. We have been seeing the effects of a strong rupee. It created a huge downward pressure on our bottomline. We really took some hits back then. All that is happening today is we are getting a little bit of respite. And there is no huge cause to cheer. The real inflation rate in India is very high which negates the effect of the weakening rupee. With the official inflation figures at 12%+ for the last quarter and no let up in the near future, we are just about back to square one.

What does a small business owner do in such a scenario?

Well, we have been implementing a hedging strategy. There are pros and cons of this whole hedging thing. However, there is one very big positive that kinda outweighs all the negatives for us. That is Certainty. Certainty in the amount of money that we know we will be receiving. Yeah, sure we might lose some money if the rupee weakens further than it already is. However, we are more comfortable when we know our exact cash flows for the next quarter or two. That helps us in planning our expenses. And it helps us keep our sanity. We are no currency trading experts and have no intention to do a PhD in that. We just need to get our money safely with a certain degree of certainty and that is what we get out of hedging.
I have no hesitation in recommending this strategy to all small exporters in India (or anywhere). Hedge your foreign currency income and keep your sanity. Concentrate on your core business. That is what you want to do.

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