How can an MNC's India subsidiary hedge foreign exchange exposure?

Indian companies with genuine underlying trade or capital account exposure can hedge foreign currency risk through authorised dealer banks using forward contracts, currency options, and other RBI-permitted derivative instruments. Hedging must generally be tied to an underlying exposure — speculative positions without a genuine underlying transaction are restricted.

Before reaching for derivatives, many subsidiaries can reduce exposure through natural hedging: timing foreign currency receivables and payables to offset each other, or invoicing in a currency that matches the cost base. A treasury policy that combines natural hedging with selective forward cover, reviewed regularly against actual exposure rather than a fixed percentage, tends to perform better than a one-size-fits-all hedge ratio.