Hedging of Forex Exposure through Currency Derivatives-Evidence from Select Indian Corporate

Abstract

To save Indian economy from collapse, in the year 1991 policy of globalization and liberalization were introduced in India. As a corollary trade barriers were also removed. It resulted into integration of domestic economy with world economy and there was substantial into flow (in and out) of capital crossing the border of the nation. However the free flow of capital and free trade exposed the Indian corporate enterprises to a higher foreign currency risk. To avoid huge loss caused by foreign exchange volatility, the currency derivatives in Indian Financial market were introduced. In the year 1999, Reserve Bank of India introduced Currency forwards, National Stock Exchange also launched the platform for trading in currency futures in 2008 and trading in Currency Options in 2010. The Indian firms were given the opportunities to effectively manage the foreign exchange risk exposure and to hedge their foreign exchange risk by using the currency derivatives. This paper attempts to evaluate the various alternatives available to the Indian corporate for hedging financial risks and this has been evaluated in select corporate enterprises.