Managing Currency Risk

Abstract

With market frontiers expanding and financial price volatility and risk going up, management of foreign exchange risk assumes importance. The implications of increased involvement of Indian companies in international trade and finance require managers to measure the foreign exchange exposure and manage it to maximise profitability, net cash flow and the market value of the firm. An analysis of the foreign risk management practices of some Indian companies reveals that they neither have a model for forecasting foreign exchange rate movement nor a detailed mechanism to evaluate the effectiveness of their foreign exchange risk management practices. The general perception among the managers of these companies is that Indian companies are small players in the foreign exchange market and better management practices would evolve only after the Indian market for hedging products fully developed and experience gained in this regard.