Author(s): Sumit Kumar
Masala bonds are financial obligations that are issued in countries other than India and are denominated in Indian Rupees (INR). Due to the fact that these bonds were issued somewhere other than India, the payment for them is made in US dollars (USD). It is a superb funding product that is equally liked by borrowers and investors. This is due to the structure of the instrument, as well as its price and return profile. The pandemic had the same effect on both nations since these bonds are vulnerable to fluctuations in the FX (Foreign Exchange) rate, and during COVID 19 the FX rate, particularly the USD/INR exchange rate, was extremely unstable. Our assessment is predicated on the daily snapshot of one year's worth of data, which spans from the 24th of December 2020 to the 24th of December 2021. This study examines the influence of currency exchange rates on the price profile of Masala bonds. We took a look at some examples of the Masala bonds that are traded on "The London Stock Exchange." They conducted an in-depth investigation on their structure as well as their properties. We chose one of the Masala bonds from the sample (HDFC) and analyzed the influence that movement in the foreign exchange rate had on the price of the local risk-free government bond. According to our results, a change of one percent in the price of the Masala Bond would be caused by a change of two basis points in the FX movement. This conclusion is consistent with the assumptions. We also discovered that there is a one percent change in the cost of the Masala Bond if there is a 27 basis point change in the price of the onshore risk-free bond.