Study of currency risk and the hedging strategies.

Tiwari, Anuradha (2019): Study of currency risk and the hedging strategies.

Abstract

The globalization of financial markets achieved by dynamic technological advancements, financial market liberalisation and the departure of capital controls have urged all MNC with foreign money streams the need to manage foreign exchange exposure risks introduced by a volatile exchange system. Today, multinational firms are striving to create methods and methodologies for an efficient and effective exchange risk management. The foreign exchange strategy embraced is essential to an MNC in the present-day condition because of the great inconstancy in transaction rates and needs to advance with the dynamic structure of the organisation. Further, given the way that organisations are continually signing commercial and business contracts titled in foreign currencies, precise estimation and supervision of exposure and economic risks have turned out to be vital to the success of an MNC. This paper review the traditional types of exchange rate risks faced by the firms due to the surge of global quest for trade across borders. The paper further explain the importance of risk management strategies with special reference to hedging and outline the various hedging strategies both external and internal used by Multinational companies (MNC’s).

• Item Type: MPRA Paper
• Language: English
• Keywords: Keywords: Exposure, currency risk ,hedging ,exchange rate, translation ,transaction, operating .
• Subjects: F - International Economics > F3 - International Finance; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; G - Financial Economics > G0 - General > G01 - Financial Crises; G - Financial Economics > G2 - Financial Institutions and Services; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors

References

•Bogicevic, J. (2013). Accounting implications of foreign currency transactions translation and hedging. Ekonomski Horizonti, 15(2), 133-148.

•Abdullah,F.(1985). Development of an Advance Warning Indicator of External Debt Servicing Vulnerability. Journal Of International Business Studies, 16(3), 135-141.

•Cavusgil, T., Ghauri, P. N., & Akcal, A. A. (2013). Doing business in emerging markets (2nd ed.). London, UK: Sage Publications.

•Daniels,J.(2010). International Business Environment and Operations. 12th ed. Delhi: Dorling Kindersley, pp.767-769.

• Daniels, J. (2010) : International Business Environment and Operations. 12th ed. Delhi: Dorling Kindersley, pp.767-769.

• Daniels, J., Radebaugh, L. and Sullivan, D. (2010). International business, prenticeHall.

•Dow, B. & Kunz, D., (2010). Accessing International capital markets at SLC. Journal of the International Academy for Case Studies, 16(3), pp.125 –130.

•Eiteman, Stonehill, Moffett, D.,(2011). Multinational Business Finance, Twelfth Edition New Delhi: Dorling Kindersley (India) Pvt Ltd.

•Eiteman, D., Stonehill, A., Moffett, M., & Eiteman, D. (2016). Multinational business finance, fourteenth edition. Harlow, Essex, England : Pearson.

•Horcher, K. A. (2005), Essentials of Financial Risk Management, New York, John Wiley & Sons, Inc.

•Hull, J.C. (1997), Options, Futures, and other Derivatives, Upper Saddle River, New Jersey, Prentice-Hall International, Inc.

•Law, Jonathan,(2014). A dictionary of finance and banking 5th ed., Oxford]: Oxford

•Levinson, M. (2005), Guide to financial markets, London, The Economist in association with Profile Books Ltd, Profile Books Ltd.

•Loomis, C.J., Burke,D.(2012), Derivatives :the risk that still won’t go away (Fortune 2009),160(1), pp.54–60.

•Madhu, V. (2011). International financial management. Third Edition, New Delhi: Excel.

•Madura, J. & Mccarty, D.E.,(1989). Research Trends and Gaps in International Financial Management Research, 7(2), pp.87 –102.

•Mishra, Dr. A.K.,(2016). Transaction Exposure. Foreign Exchange Exposures: Transaction •Nseindia.com.(2019).[online]Availableat:https://www.nseindia.com/invest/resources/download/prs_optcur_eng_br.pdf [Accessed 12 Apr. 2019].

•Papaioannou, M.(2006). Exchange Rate Risk Measurement and Management: Issues and Approaches for Firms. IMF Working Papers, 06(255), p.1.

•Pike, Richard & Neale, Bill,(1999) Corporate Finance and Investment,third Edition , Prentice Hall.

•Rao, R.K.S., Smith, S.D. & Shapiro, A.C.,(1983). Multinational Financial Management. The Journal of Finance, 38(5), pp.1682 –1684.

•Soenen & Madura,(1991). Foreign exchange management —A strategic approach, Long University Press.

•Vij, M.,(2005). The Determinants of Country Risk Analysis: An Empirical Approach Case . Journal of Management Research 5(1),pp.20-31