The Reserve Bank of India has allowed banks to offer plain vanilla cross currency options to residents in India who transform their rupee liability to a foreign currency liability.

In its draft guidelines on over-the-counter (OTC) forex derivatives and hedging commodity price risk and freight risk overseas, the RBI has proposed that importers and exporters having underlying unhedged foreign currency exposures in respect of trade transactions — evidenced by documents like firm order, letter of credit or actual shipment — may write plain vanilla stand-alone covered call and put options in cross currency and receive premia.

“Since importers and exporters are being permitted to write covered call and put options both in foreign currency - rupee and cross currency and also receive premia, the facility of zero cost structures or cost reduction structures is being withdrawn,” the RBI has said. It has said that banks can hedge their risks arising out of movement in gold prices and currency, and assets and liabilities.