CHOICE OF CURRENCY OF

INVOICING: A DEFENCE
AGAINST FALLING DOLLAR
Mr.C.Jeevanandam, Associate Professor
Ms.S. Shanmuga Pria, Assistant Professor
Sardar Vallabhbhai
Patel Institute of Textile Management,
Coimbatore.
 Agenda
• Introduction
• Trend in Rupee Performance
• Choice of Invoicing Currency
• Currency Portfolio
• Conclusion
 Introduction

• Exporters demanding RBI to keep off

market
• Market based rates from 1993
• Rupee traditionally depreciating
• Recent rupee appreciation
• Exporters needing govt intervention
 Managing Rupee Appreciation
• Derivatives
– Forward contract
– Short term up to one year
– Cannot benefit from gains
• Government support
– Better export incentives
– Lower rate of interest
• Currency of Invoicing
 Trend in Rupee Performance
• Average Rupee Exchange Rate: 2002 – 2007
Year INR Vs INR Vs INR Vs INR Vs
Euro Pound US Yen
Sterlin Dollar
g
2002 45.7158 72.6700 48.4392 38.6733
2003 52.6525 76.0883 46.5758 40.1983
2004 56.3258 82.9917 45.3167 41.7375
2004 54.8967 80.2333 44.0992 40.1017
2006 56.9275 83.5100 45.3092 38.9750
2007 56.2589 81.5196 39.9550 34.4554
CAGR -5.03% -2.83% 4.92% 2.96%
• Average Dollar Exchange Rate: 2002 – 2007
Year USD per USD per INR per Yen per
Euro GBP USD USD
2002 0.8992 1.4451 48.31 131.58
2003 1.0361 1.6045 48.08 120.48
2004 1.2592 1.7902 45.66 106.38
2004 1.3476 1.9058 43.29 103.09
2006 1.1842 1.7188 45.05 117.65
2007 1.4410 1.9586 39.45 114.02
CAGR -7.39% -5.90% 4.14% 2.91%
• Average Volatility in Rupee Exchange Rate
Year INR Vs Euro INR Vs INR Vs US INR Vs Yen
Pound Dollar
Sterling
2002 1.5475 1.0065 -0.0288 0.9358
2003 1.0464 0.5849 -0.4270 0.4985
2004 0.0571 -0.0176 -0.3082 -0.0374
2004 -0.5501 -0.4008 0.1299 -0.8061
2006 0.6109 0.8955 -0.0088 -0.3132
2007 -1.2367 -1.3106 -1.4862 -2.2070
Std.Dev 4.38 4.80 2.41 2.48
 Choice of Invoicing Currency
• Contract Value in Other Currencies

Year Contract Contract Contract

value in Value in Value in
EUR GBP JPY
2002 111210 69199 13158000
2003 96516 62324 12048000
2004 79416 55860 10638000
2005 74206 52471 10309000
2006 84445 58180 11765000
2007 69396 51057 11402000
• Rupee Realization through different
currencies.
year USD Eur GBP JPY
2002 58127000 61008694 60344613 61063646
2003 55891000 60981565 56906201 58117142
2004 54380000 53677731 55630656 53280423
2005 52753000 49549460 51076631 50147358
2006 54371000 57687049 58303468 55024905
2007 50566639 46811478 50979989 47451209
Total 326088639 329715977 333241558 325084684
Variation %
1.11 2.19 -0.31
 Netting as Natural hedge
• Group currencies based on relation with
rupee – appreciating or depreciating
• Assess the relation between the currency
movements
• Endeavour to get zero effect of exchange
rate through proper combination
• Correlation of Exchange rates of currencies

Currency EUR GBP JPY

USD -0.603 - 0.541 0.440
EUR 0.9 0.2

GBP 0.1
 Conclusion
• Euro is the alternative currency of
invoicing
• Behaviour of competitors currency against
dollar is important
• Long term solution in cost reduction and
improved quality
Thank You