Readings: CDS database, Shipping derivatives, FX outflows
- Paul Kedrosky: Top 20 CDS by Net Exposure: Italy/Spain Rule
Source: DTCC’s weekly CDS update
- Financial Times: Concern over shipping derivatives losses
Traders in forward freight agreements (FFA) – derivatives based on short-term charter rates – could owe significant sums if they were betting on a rise in charter rates for ships carrying coal, iron ore and other commodities.
The sector’s Baltic Dry Index of charter rates started the month at 3,025 points and closed on Friday at 851. The 80 per cent of trades made through clearing houses were being settled on Monday, while traders who bought cash-settled products through private transactions, known as over-the-counter trades, have until Friday to settle.
It is widely expected that hedge funds could be particularly badly hit.
No respite in bad news for hedge funds.
- Morgan Stanley: RBI’s Swift Policy Response to Large FX Outflows
India’s FX reserves declined by US$15.5 billion during the week ended October 24. This is the highest weekly fall in FX reserves on record. FX reserves have been declining since the last week of May 2008 and have cumulatively fallen US$57.7 billion from the peak to US$258 billion currently.
Our conversations with real estate market players indicate that many developers are facing serious financial management challenges. Some are borrowing at a cost of over 30% to complete their projects. Private sector banks already face a significant rise in NPLs on their unsecured loan portfolio. Banks also have exposure to non-banking financial companies, who, in turn, are also likely to face higher NPLs.
Some SMEs had not hedged the foreign exchange risk or had hedged under ‘knock-in knock-out’ (KIKO) agreements. Many hedges made under these KIKO contracts are lapsing, due to the sharp movement in the rupee in such a short time span. This has meant that many SMEs have seen losses on foreign external liabilities increase significantly.
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