India Policy: What the heck?

Wednesday, December 17, 2008

Banks told to bear half of exporter' forex losses

Speaking to ET, a commerce department official pointed out that many exporters did not fully understand the exotic derivatives products and banks were also responsible for the losses. "We have proposed that losses should be split between the exporter and the bank," the official said.
This is a terrible precedent.  Responsibility is being shifted from the decision maker:
  1.  if the derivative had gone in favor of the exporter would the gain have been shared?
  2. Exporters now know they  do not need to understand the risks..they will not hire appropriate people.
  3. Banks will think twice about this business in the future, many companies that need to hedge will be left in the lurch.
What is next..if you can bail-out sophisticated business houses from bad hedging decisions what about the individual investor...he/she can claim not to have understood the risk in the equity markets..after all P/E ratios, put/call parity, futures and options, leverage are fairly complex ideas.  Should Brokers/Security houses share the losses of the individual investor?

Seems reasonable given this administrations mindset.

Subscribe to Lee's Dhaba by Email

0 Post Comments:

Post a Comment

Add to Technorati Favorites

  © Blogger template Newspaper by 2008

Back to TOP