Hedging Practices Used by Indian Companies in Managing Foreign Exchange Risk

In the light of globalization and internationalization of world markets, foreign exchange risk has become one of the most difficult and persistent problems with which firms must cope. Economic reforms initiated by the Indian government in 1991 have created enormous opportunities for Indian economy a...

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Bibliographic Details
Published inThe ICFAI journal of financial risk management Vol. 13; no. 1; p. 41
Main Author Maniar, Hiren
Format Journal Article
LanguageEnglish
Published Hyderabad IUP Publications 01.03.2016
Subjects
Currency
Economic conditions
Economic crisis
Economic reform
Fixed exchange rates
Foreign exchange controls
Foreign exchange markets
Foreign exchange rate risk
Foreign exchange rates
Futures
Hedging
International finance
Risk management
Tenure
Volatility
India
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Summary:In the light of globalization and internationalization of world markets, foreign exchange risk has become one of the most difficult and persistent problems with which firms must cope. Economic reforms initiated by the Indian government in 1991 have created enormous opportunities for Indian economy and the same has helped Indian companies in opening trade opportunities with global companies, but it has come at the cost of huge volatility of Indian Rupee (INR) against various foreign currencies. The purpose of this research paper is to study the hedging practices for managing foreign exchange risk as adopted by the select 50 export-oriented Indian companies on various parameters like hedging coverage, hedging policy decision, hedging tenure, hedging instruments, number of currencies for hedging, hedging approach and involvement, hedging strategies execution and hedging benefits. The research uses questionnaire as a primary data collection tool and Microsoft Excel spreadsheet and other statistical techniques for analyzing research data for the study. Overall, this research has made an attempt to present a viable scenario about hedging practices used in managing foreign exchange risk by the surveyed 50 export-oriented Indian companies, and the findings would give future research direction for further study on hedging practices adopted by other Indian companies, especially companies in the Indian infrastructure sector which are importing inputs, mainly commodities/raw materials, and raising fund in foreign currencies.
ISSN:0972-916X