Forex Hedging Gain Calculator

How Forex Hedging Works

When an Indian exporter expects to receive USD in the future, they face the risk that the rupee may appreciate (USD becomes worth fewer rupees) by the time payment arrives. A forward cover locks in a pre-agreed exchange rate today, eliminating that uncertainty.

1. Book a forward contract: You agree with your bank to sell USD at ₹84.50/$ in 90 days, regardless of what the market rate is on that day.
2. Payment arrives: 90 days later, the spot rate is ₹83.20/$. Without the hedge, you'd receive ₹83.20 per dollar.
3. Hedging gain: Because you locked in ₹84.50, you earn ₹1.30 extra per dollar — a gain. This is your gross hedging gain.
4. Net the premium: The bank charges a small premium for this service. Subtract it to get net gain.
5. Annualise: Express the gain as an equivalent annual return to compare it against your cost of capital.

If the spot rate at maturity is higher than your forward rate, you've "missed out" on the upside — but avoided downside risk. The trade-off between certainty and opportunity is what treasury management is about.