How can I lock in a good USDINR rate to cover my EMIs for next 5 years?

[DesiChap]

Folks,

It looks like USD is getting stronger and stronger which I am sure is for short term only. I was wondering if I can somehow lock a good rate now for my future EMI payments for about 5 years.

Please let me know if there is a way to do this.

Thanks!

[MrLong]

It will cost you money/premium, and the premium amount is a function of the duration, and the capital amount. This could be done in options market. There are other ETF's that carry certain countries basket of currencies, which bet on the direction of the currency.

-M

[oasis138]

Folks,

It looks like USD is getting stronger and stronger which I am sure is for short term only. I was wondering if I can somehow lock a good rate now for my future EMI payments for about 5 years.

Please let me know if there is a way to do this.

Thanks!

So lets understand this first before i propose a probable solution.

Say your monthly emi is Rs 50k in India per month for the next 5 years. So total payments = 50k *60 = 30 lakhs RS. Today is you wanted to pay your EMI you would need to send 50k/46.5 = ~$1075. The dilemma you face is that if tomorrow $ = 44 INR then you end up paying $1136 and so on depending on the exchange rate. To srat with what level are you happy with? Is it $ = 47 or $ = 48 or $ = 46?...So what I am suggesting is that in your mind you have to know the $ amount you want to send to India every month. Lets fix it at say $ = 46. This implies every month (ignoring transaction costs which should actually make rate $ = 45) you want to send 50k/45 = $1111. If you were an institutional client you could enter into a contract with your bank where you would send $1111/month for the EMI. If the amount exceeded $1111 then the bank would cover the incremental cost and if it was lower then you would still pay $1111 (in this case bank makes money). My guess is you are not an institutional client so most probably you cannot execute the above. You should still ask your bank if they have any option as suggested in this thread.

[r2i-mumbai]

If you have the money then you can transfer it now but that's unlikely so the other option you have is to find a counterparty that will sell you Rs at a predetermined rate for next five years. Typically importers in India need to buy $ and sell Rs. You can ask some banks if they can broker a transaction between you and any of their importer clients. I am assuming you are looking for a small amount so I wonder if any banks/dealers would be interested. You can also look at over the counter currency swaps or exchange traded currency futures. Rupee derivatives are traded in Singapore and Dubai but I don't have specifics. NSE and MCX-SX trades currency futures but they go out only 1 year and not 5 years.

You can use proxy hedging techniques like go long on gold here in the US and short on gold in India so only currency risk remain which is what you need to hedge your EMI payments.

[VWbuggy78]

The cheapest way to do this without getting into FX futures is this:
Borrow money in USD now
Move it all to India and invest it in some post office or some such scheme
Pay off local USD loans with salary you make here

[r2i-mumbai]

The cheapest way to do this without getting into FX futures is this:
Borrow money in USD now
Move it all to India and invest it in some post office or some such scheme
Pay off local USD loans with salary you make here

This solution is really good if you can borrow at low rates. If you can borrow agaist your home equity or car then you should be able to borrow at low rates. If you take a unsecured loan like a credit card loan then interest differencial will wipe out any FX gains.

Even thoug USD is getting stronger it is getting stronger agaist Euro. Euro is getting weaker rather then $ getting stronger. Personally I think INR is likely to depreciate from this point. Even if it doesn't stay low, it will go lower for a while sometime in next few years. I think you can use that opportunity to buy INR. This is a separate discussion from the OP.

[VWbuggy78]

R2I mumbai, I have no comments on which way the currency is going. The method is just a home grown way to replicate what you will have if you bought futures on Indian currency (which is effectively what the poster wanted). But Indian currency is not liquid enough for us to get a good deal on. You will lose a lot on transaction costs.

in general, the user will be able to borrow at lower rates in the US than in India for any class of debt. Even credit card rates in India cost at least 5 - 10 percentage points more than in the US. But if Indian rupee appreciates against the dollar, then the OP will lose money.