Current Context: On 10 October 2026, the Reserve Bank of India (RBI) announced a special foreign exchange window to meet the dollar requirements of three public sector Oil Marketing Companies (OMCs). It also tightened rules governing foreign exchange derivatives to strengthen market discipline, improve risk management and ensure orderly functioning of the forex market. The special dollar facility became effective on 12 October 2026.
Key Points:
- Beneficiary Companies: The facility covers Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL).
- Facility Mechanism: RBI will sell US dollars through designated banks to meet these companies’ entire daily dollar requirements.
- Duration: The special window will remain operational until further notice.
- Rebooking Restrictions: Users cannot rebook cancelled INR-linked forex derivative contracts, whether deliverable or non-deliverable, covered by the new directions.
- Rollover Permitted: Rollover of contracts at maturity remains allowed, subject to existing regulatory requirements.
- Reduced Exposure Threshold: The threshold for undertaking eligible forex derivative transactions without establishing the underlying exposure was reduced from USD 100 million to USD 5 million, across all Authorised Dealers.
- Exchange-Traded Derivatives: The corresponding threshold for INR-linked exchange-traded currency derivatives was also reduced to USD 5 million, across recognised stock exchanges taken together.
- Mandatory Undertaking: Users must confirm that the same underlying exposure has not been hedged with another Authorised Dealer.
- Foreign Exchange Risk Reserve: RBI introduced a 20% Foreign Exchange Risk Reserve (FERR) for eligible INR-linked derivative contracts with a notional value exceeding USD 2 million.
- FERR Applicability: It applies to contracts hedging current account transactions where the user purchases foreign currency against the rupee.
- Reserve Maintenance: Authorised Dealers must maintain the reserve in cash with RBI until the contract terminates. The reserve equals 20% of the rupee equivalent of the contract’s notional amount.
Question:
Q1. RBI reduced the threshold for eligible forex derivative transactions without establishing underlying exposure from USD 100 million to which amount?a) USD 2 million
b) USD 5 million
c) USD 10 million
d) USD 20 million
Answer: b) RBI reduced the threshold to USD 5 million to strengthen verification of underlying exposures and improve forex market discipline. The corresponding threshold also applies across recognised stock exchanges taken together for INR-linked exchange-traded currency derivatives.
