The RBI has proposed that importers and exporters having underlying unhedged foreign currency exposures in respect of trade transactions, evidenced by documents like firm order, letter of credit or actual shipment, may write plain vanilla standalone covered call and put options in cross currency and receive premia.

“Since importers and exporters are being permitted to write covered call and put options both in foreign currency, rupee and cross currency and also receive premia, the facility of zero cost structures or cost reduction structures is being withdrawn,” the RBI said.

The central bank has also said banks can hedge their risks arising out of movement in gold prices, currency, assets and liabilities.

“Banks having adequate internal control, risk monitoring and management systems, mark to market mechanism are permitted to run a foreign currency–rupee options book, subject to prior approval from the RBI,” it said.

Banks and companies can cancel and rebook their forward contracts, provided they give their exposure information.

Banks can only offer plain vanilla European options, while companies can buy call or put options, it said.

Companies cannot undertake swap transactions involving upfront payment of rupees or its equivalent to hedge their long-term foreign currency borrowings, the RBI said.

To hedge external commercial borrowings, companies can undertake swaps of interest rate, cross currency and coupon, options and forward rate agreement.