Indian borrowers and bankers often need to understand hedge cost of USD ECBs. Here we are listing down some common hedge costs which provide a fair idea to start with.
1. If you have an ECB at USD 6MLibor + 300 bps the fully hedge cost for the same will be INR 10.10%, 10.30% and 10.70% respectively for bullet maturity of 3,5 and 10 years. For amortizing loan cost will be different.
2. The fixed rate of hedging only the USD libor risk and no currency risk will be 1.20%, 1.60% and 2.15% respectively for bullet tenor of 3,5 and 10 years.
3. Forward premium curve is inverted. While 1 year annualised premium is 6.50%, the rates are 5.50%, 5.00% and 4.20% respectively for 3,5 and 10 years.
4. Cost of taking plain call option instead of forward contract is roughly 0.8% p.a. extra over forward cost.
5. Cost of call spreads to protect up to Rs 15.00 ( 66.00 to 81.00) cost ranges between 5.0%, 3.4% and 1.6% for 3,5 and 10 years of bullet maturity. Cost of call spreads till forward level costs 4.4%,4.1% and 3.3% respectively for 3,5 and 10 years of bullet maturity.
*Please note, these are standard indicative levels for bullet maturities. Levels change everyday as well.
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