/ jvs or spvs are being used to fund acquisitions through leverage buyout route which reduces the risk on the domestic balance sheet. a substantial portion of investment has taken place through the spvs set up for the purpose abroad. the funding is often arranged through overseas banks backed either by shares or assets of the target company and / or guarantees by the indian parent. so far companies have largely used a mix of their retained earnings ( internal source ) and borrowings ( external source ) to finance their overseas acquisition. this is in quite contrast to what is generally seen in the context of many other countries ’ cross - border m & as where share swapping is a popular option of financing. share swaps have not yet emerged as a favored payment option in india except in a few large transactions in the software industry 7. during the post - reform period, indian capital market has been significantly liberalised. as a result, the market capitalisation of stocks of indian companies has also substantially improved over the years. this, in turn, seems to have facilitated greater access to overseas capital markets for financing their overseas investments. further, sustained growth in corporate earnings has improved the profitability and strengthened the balance sheets of indian companies which also helped them to undertake cross - border acquisitions through internal resources. e. measures taken by the reserve bank of india the liberalisation of the overseas investment policy since the year 2003 has been substantial, given the improvement in macro fundamentals, and bias towards calibrated relaxation of the policy towards capital account rules. commensurate with the build - up of the foreign exchange reserves of the country, there has been a larger opening up of the overseas direct investment avenues resulting in the enhancement in the quantum of overseas direct investment to 400 per cent of the net worth as mentioned earlier. similarly, the aggregate ceiling for overseas investment by mutual funds, registered with sebi, was enhanced from us $ 4 billion to us $ 5 billion in september 2007. this was further raised to us $ 7 billion in april 2008. apart from raising the financial limits, the reserve bank has also overseas investments by indian companies – evolution of policy and trends : keynote address by ms shyamala gopinath, deputy governor of the reserve bank of india, at the international conference on indian cross - border presence / acquisitions, mumbai, 19 january 2007. bis central bankers ’ speeches automated the entire process of allocation of unique identification number ( uin ). the automation through a web based application has enabled efficient processing which has

##ersing the same intra - day. while undertaking a hedge in a volatile market stands to reason, reversing it on the same day does not in any way reflect the medium to long term view of the corporate. it will be well appreciated by this discerning audience that any position undertaken to take advantage of the one way movement intensifies the move adding to the demand / supply pressures in the market. while it is well appreciated when the move reflects the hedging intention of the corporate, it does not augur well for the market volatility if the same is undertaken to speculate on the market movements. • it is a well known fact that given the rupee ’ s strength in recent history ( though not very recent ), indian importers generally stay unhedged or have a very small hedge ratio. even corporates who have both import and export exposures prefer to have their import exposures unhedged while almost fully utilising their export exposures. the same approach is followed in case of probable exposures also. in the current depreciating trend of rupee, these excess unutilised limits are a cause of concern when used for speculation. • the past performance facility was made available to corporates in addition to the facility based on actual exposures so as to allow them to plan ahead for managing their foreign currency exposures. both facilities together amounted to almost double the exposures of the corporates and without any delivery mandate on either could be / were used for speculative purpose. does it really constrain the corporates in managing forex risk or were the leeway given earlier enhancing the volatility and being misutilised? 17. let me emphasise here that the facility of rolling over the transactions continue to be in place to provide the corporate flexibility to alter the tenor of the hedge depending on the liquidity of the tenor, view on the forward premia, availability of pricing and also to match the tenor of the transaction to that of the underlying exposure in case delayed payments, uncertain maturity date ( for ex. in case of past performance ) etc. 18. hence, although the restrictions imposed take away certain leeway provided in managing the forex risk, it in no way restricts the ability of the corporate to do so. in a manner of speaking, it only takes away the additional volatility that the p & l of the corporate was subject to on account of forex trading. bis central bankers ’