Corporate Hedging Strategies Explained
After swaps explained how interest rate and currency risks can be transformed, corporate hedging strategies answer the practical treasury question: what should a company hedge, with which derivative, and how much protection is enough? This matters in interviews because Indian corporations face significant market risks that are actively managed through derivatives, and strong answers connect the company’s core exposure to the right instrument and hedge ratio.
- Indian corporations face significant market risks that are actively managed through derivatives.
- IT Services companies such as TCS, Infosys, Wipro face INR appreciation erodes USD/EUR revenue, using Forward contracts, Options, Range forwards.
- Airlines such as IndiGo, Air India face Jet fuel price spikes (Brent Crude), using Crude oil futures, Options, Swap collars.
- Importers face INR depreciation → higher ₹ cost, using USD/INR futures on NSE and Forward contracts.
- Exporters face INR appreciation → lower ₹ realisation, using Forward sale of USD and Put options on USD.
- Infosys actual policy: Hedges ~50% of 12-month rolling USD exposure using a mix of forwards (60%) and options (40%).
Big Picture: Corporate Hedging as a Treasury Decision
Indian corporations face significant market risks that are actively managed through derivatives. The practical decision is to identify the primary risk, select the hedging instrument, and decide whether to lock in certainty or retain some upside through a partial hedge.
Infosys: The Full Framework in One Business
Infosys shows the full corporate hedging decision because it has USD revenue, INR costs, a clear USD/INR exposure, and multiple hedging choices that trade off certainty against upside.
A shallow answer only names forwards or options; a complete answer explains the risk, the hedge choice, the downside of locking in, and why the company may hedge partially.
Partial hedge retains upside if INR depreciates, while protecting against sharp appreciation.
Structuring a Corporate Hedging Strategies Explained Interview Answer
"How does Infosys hedge its forex risk?"
Go beyond the textbook by covering hedge ratio - partial, not 100% - and accounting treatment - hedge accounting under Ind AS 109.
The frequent error is treating corporate hedging as a 100% risk elimination exercise. In the Infosys case, the hedge ratio is partial, not 100%, because partial hedge retains upside if INR depreciates, while protecting against sharp appreciation.
Conclusion
Corporate hedging strategies are practical treasury decisions: identify the primary market risk, choose the right derivative instrument, and decide the hedge ratio. The strongest interview answers use named Indian examples and show how partial hedging balances protection with upside.