State the broad procedures that should be followed to decide whether to hedge forex risk and in selection of the hedge instruments.

BROAD PROCEDURES TO BE FOLLOWED TO HEDGE FOREX RISK AND IN SELECTION OF HEDGE INSTRUMENTS STEP - 1 Select forecasts of distribution of exchange rates in order to determine the probability of adverse movement or use services of forex forecasters. STEP - 2 Decide whether dynamic hedging or conservative hedging or mixed approach is required. STEP-3 Assess the impact of exchange rate changes on financial performance and position under various scenarios. STEP -4 Decide how much to hedge considering overall risk limits and likely adverse impacts during impact on loan covenants. STEP-5 Select appropriate hedging instrument. Decide currency forwards (date for date hedging), currency futures (timing mismatch hedging), currency options (allows favorable advantage) and currency swaps (JPY loan hedging), zero cost collar (zero cost hedging) depending on the type of exposures mentioned. Alternative Solution Since the MAPL wants to hedge both interest risk and currency risk it should go CIRCUS Swap or Currency Coupon Swap. To hedge 40% exposure in a manner that allows them to take advantage of favorable movement in exchange rate and within that bracket some portion should be zero cost hedge, they should go for Collar option, a combination of selling (short) Put and buying (long) Call Option.