Companies signed new deals to delay derivatives losses

"Many firms have delayed losses by restructuring their positions in some form or the other, by moving it to next year or getting into some structures that would give them an exit at 1.05-1.07-level," said a Delhi-based forex consultant.

Consider a swap that is maturing in July 2008. To meet its liability, the company will have to buy Swiss franc, which was the choice of currency in these deals, at the prevailing market price (say, 1.05 to the US dollar) to settle the deal.

The company may choose to fund the same by writing another option in future, say 18 months or two years down the line. Experts say that the Reserve Bank of India (RBI) doesn't allow banks to do so as companies would be delaying their risk-payouts.

"Companies exercising this option would run the risk of increasing their losses. In the worst case scenario, the franc could rise to 0.90 against the dollar. If it depreciates to 1.10, companies would be better off than they are on Wednesday," added an expert.

Considering that the franc appreciated 20-25 per cent from the levels of 1.22 to the US dollar when these companies entered into derivative deals, experts say the chances of a recovery are high. That too, if the US economy recovers and the dollar strengthens