case study on foreign exchange risk management in india

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Case Study On Foreign Exchange Risk Management In India

Case Study On Foreign Exchange Risk Management In India . The unexpected alterations occurring in the exchange rate that leads to the modification of the amount of home currency leads to the. The burgeoning growth of small businesses in the indian export industry warrants studies that depict the best practices in currency risk management.

The main objective of the study will be to examine the foreign exchange risks faced by banks. Web ramesh pai view show abstract pdf | a study regarding the foreign exchange risk management in indian commercial banks is proposed to be conducted in bengaluru city. Web this article presents a case analysis of rjr nabisco holdings corporation’s foreign exchange management.

| Find, Read And Cite All The Research You.

The corporate has in place a risk management policy approved by its board which contains the following: Web 1 the dilemma of hedging foreign exchange risk by narasimha prakash, visiting professor in finance, bangalore background corporates and wealthy individuals in india have over the years caught up with the developed nations in driving up the demand for high end swanky cars. The sample was drawn from 85 non financial indian firms for the year 2000 to 2015.

Web Introduction Due To Globalization Of Indian Economy The Trade And Investments With Rest Of The World Has Increased And Firms Have Come Across With Different Kinds Of Risk Exposures.

Web conceptually the foreign exchange market faces risks of transaction exposure, translation exposure, and operating exposure which seems to be part of the exchange rate determination system. The hedging measures to be part of the risk management practices in the foreign exchange system across the global market. The case study discusses how bp came up with a comprehensive risk.

Web This Article Presents A Case Analysis Of Rjr Nabisco Holdings Corporation's Foreign Exchange Management.

Web pdf | this paper analyses the impact of foreign exchange rates on the foreign exchange reserves and the real gross domestic product in india. And ites industry will increase to the u.s. Web toyota employed derivative financial instruments, including foreign exchange forward contracts, foreign currency options, interest rate swaps, currency swap agreements and interest rate options to manage its exposure to fluctuations in interest rates and foreign exchange rates.

Web The Foreign Exchange Management Act, 1999 (Fema), Empowers The Reserve Bank Of India (Rbi) To Frame Regulations For The Enforcement Of Fema.

Guidelines on risk identification, measurement and control guidelines and procedures to be followed with respect to revaluation and monitoring of positions designation of officials authorized to undertake transactions and limits per Despite rising sales revenues, bmw was conscious that its profits were often severely eroded by changes in exchange. Web ramesh pai view show abstract pdf | a study regarding the foreign exchange risk management in indian commercial banks is proposed to be conducted in bengaluru city.

Web The Management Of Interest Rate Risk Includes A Combination Of Different Policies, Techniques As Well As Actions That Are Used By The Banking Organizations So As To Reduce The Risks.

The unexpected alterations occurring in the exchange rate that leads to the modification of the amount of home currency leads to the. The burgeoning growth of small businesses in the indian export industry warrants studies that depict the best practices in currency risk management. Web page 3 of 26 i.

Strategies of Indian Firms in Coping With Forex Risk Management: An Inquiry Through Case-Research Method

How to Cite

• Endnote/Zotero/Mendeley (RIS)

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Foreign Exchange Risk Management in Indian Commercial Banks: Perspectives of Bankers and Customers

2019, International Journal of Management, Technology, and Social Sciences (IJMTS)

A study regarding the foreign exchange risk management in Indian Commercial Banks is proposed to be conducted in Bengaluru city. The main objective of the study will be to examine the foreign exchange risks faced by Banks and their customers, to understand the different instruments used to hedge those risks and the efficacy of those measures in managing the risks. The study will be considering the scenario from a banker and customer perspective. The research will be entirely quantitative in nature and data will be collected through structured questionnaires. The data so collected will be analysed using various statistical techniques and financial ratios. The proposed study is expected to further the cause of forex risk management.

Related Papers

Africa Development and Resources Research Institute Journal

Africa Development and Resources Research Institute ADRRI

Foreign exchange rate risk in general is related to unexpected changes in foreign exchange rates. The importance of managing foreign exchange risk has increased with a global economic and financial integration, and the associated increase in global trade, liberalization of financial markets, and dismantling of capital controls. There are no exchange-traded currency derivatives in India. In terms of the growth of derivatives markets, and the variety of derivatives users, the Indian market has equaled or exceeded many other regional markets. While the growth is being spearheaded mainly by private sector institutions and large corporations, smaller companies and state-owned institutions are gradually getting into the act. This paper has tried to examine prior research on foreign exchange exposure and the use of operational and financial hedging to manage foreign exchange exposure by Indian Companies. Further this paper has attempted to examine Indian companies’ foreign exchange risk management practices. This paper has also tried and present some of the main issues in the measurement and management of exchange rate risks faced by companies, with particular attention to the traditional types of exchange rate risk (transaction, translation, and economic), and the advantages and disadvantages of various exchange rate risk management approaches (tactical vs. strategic, passive vs. active). It has also tried to outline a set of widely accepted best practices in currency risk management, and review the use of some of the widely used hedging instruments in the OTC and exchange traded markets.

adeel jamroz

This paper investigates how Conventional and Islamic banks in Bangladesh manage their foreign exchange risk and compares the results to theoretical findings and to previous empirical research. The information incorporated in this report is collected both from the primary sources and as well as from the secondary sources. Data directly from the practical field is called primary source of data. Although Information is mainly collected from different published articles, journals, brochures, published documents of Bangladesh Bank and web sites. The study finds significant differences in the foreign exchange risk management policies, guidelines of Bangladesh Bank, Management oversight notably in the choice of various types of exposure to cover and in the hedging instruments used. Consistent with previous research, forwards and netting are the most used instruments and transaction exposure is the most managed foreign exchange risk. Surprisingly, translation and economic exposures are not well identified and managed mainly because firms believe it is unnecessary or too compels. Finally, firms hedge their exposure but never fully due to high cost of hedging. The researchers believe this report inspires to increase the performance and management of these respected Banks.

SSRN Electronic Journal

Willy Muturi , IJSSIT Publication

Since the abolishment of the fixed exchange rate system and the replacement with a floating exchange rate system, exchange rate fluctuation has been a great concern to organizations, banks and even investors. In the recent past, we have seen the penetration of local banks in foreign markets as well as penetration of foreign banks in to the local markets. This exposes them to risks associated with dealing in foreign currency and the risks have to be managed. The study thus sorts to find out the effects of the foreign exchange risk management techniques on the financial performance of commercial banks in Kenya. To achieve the objectives the data was collected from the population of 39 out of 43 banks registered in Kenya due to data availability. Data collected was both primary and secondary. Primary data was collected by use of questionnaires that were administered to the individuals in managerial positions. The secondary data was collected using schedule. Each of the commercial banks was served with two close-ended questionnaires. The study found that use of financial derivatives had a significant influence on the performance of commercial banks in Kenya. Particularly options, swaps and forwards were all found to have positive effect on the performance of commercial banks in Kenya. The study therefore recommended the use of financial derivatives by commercial banks to hedge against foreign exchange risk fluctuations.

European Scientific Journal ESJ

The general objective of this study was to establish the effects of hedging foreign exchange risk on financial performance of non-banking companies listed at the Nairobi securities exchange. A descriptive research design was adopted on the target population of 49 non-banking firms listed at the NSE. Primary data collected using a questionnaire was used containing both open and close ended questions. Data was analyzed using SPSS to generate descriptive statistics such as percentages, frequency distribution, measures of central tendencies (mean) and the data was presented in tables. The study conducted multiple regression analysis to establish the extent to which the hedging techniques affected firm's performance. The results showed that, taking all factors into account (internal hedging techniques, external hedging technique, inflation and interest rates) performance of non-financial firms would be 0.564. The findings presented further indicated that internal hedging had the greatest effect on the firm performance (β = 0.551), Inflation (β = 0.322), External hedging (β = 0.133 while interest rate (β = 0.024) had the least effect to the firms performance. However, all the variables were significant (p<0.05). Hedging techniques affected firm's performance i.e. profitability, sales revenue and the cash flow and liquidity position of the firm. The internal techniques were more effective on the performance than the external techniques. The four independent variables studied accounted for 75.5% of the variations in non-banking firms' performance as represented by the adjusted R 2. This therefore means the four variables contribute to 75.5% of performance, while other factors not studied in this research contributes 24.5%. The study recommends that, firms develop a robust foreign exchange risk management framework which clearly shows its currency risk assessment procedure and implementation of

SDMIMD Journal of Management

P. Bala Bhaskaran

More and more Indian firms are becoming global in their operations - through exports and imports, by setting up manufacturing plants abroad and through joint-ventures and tie-ups. In this process most of them are dealing with multiple currencies. This has increased the overall exposure of Indian firms to foreign exchange-rate fluctuations. How have they been coping with the risk associated with the exchange-rate fluctuations? In order to explore this, the authors have engaged the case-research method. The authors studied 64 cases for this purpose. Of these 27, firms have been handling forex exposure and/or have had at least one near-crisis situation in the past. The remaining 37 cases are Indian firms from sectors like Textiles, IT, Gems and Jewelry, Pharma, Engineering, FMCG and Energy. The study focused on the context of these firms, their business model, the sources of forex exposure and the policies and practices of managing forex exposure risk. The authors have tried to identif...

Faculty of Management Sciences, Lagos State University, Lagos, Nigeria

Dr. Julius P EYANUKU

Foreign exchange risk as the risk related with the unexpected changes in exchange rates and foreign exchange exposure as the extent to which unexpected changes in exchange rates affect the value of a firm's assets or liabilities. The use of foreign exchange management strategies results in reduced foreign exchange exposure hence minimal losses. The broad objective of the study is to determine the foreign exchange, risk management and profitability of deposit bank money in Nigeria, while the specific objectives are to analyze the risk associated with foreign exchange management and access the effect of foreign exchange risk management on financial performance. This paper discusses the methods by which the various objectives earlier discussed in chapter one were accomplished. Specifically, this chapter deals with the various methods used for the study. In conclusion, the relevant authorities for instance The Central Bank of Nigeria should adequately put measures to safeguard the value of the domestic currency, this would ensure that the value on the same does not fluctuate much day in day out and finally, the study investigated the relationship between foreign exchange trading and financial performance of commercial banks in Nigeria and aim to shed some additional light on the topics of foreign exchange trading and risk. Finally, it was recommended that relevant authorities for instance the Central Bank of Nigeria should adequately put measures to safeguard the value of the domestic currency. This would ensure that the value on the same does not fluctuate much day in day out.

Vipul Kalathiya

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Foreign Exchange Risk Management in India

Introduction

India is now a well-integrated with the world economy and moves in tandem with global developments, both on the economic front as well on the currency front. The far-reaching changes in the Indian economy since liberalization in the early 1990s have had a deep impact on the Indian financial sector. The development in the Indian foreign exchange (FX) derivatives market should be seen along with the steps taken to gradually reform the Indian financial markets. The resultant spurts in foreign investments led to substantial increase in the quantum of inflows and outflows in different currencies, with varying maturities. The reforms provided the economic rationale for the introduction of foreign exchange (FX) derivatives and risk management since then has under gone a paradigm shift.

Need for a dynamic foreign exchange (FX) market in India

With the dismantling of trade barriers, business houses started actively approaching foreign markets not only with their products but also to source capital and direct investment opportunities. India Inc today has reached the scale and size of the global order and several Indian organizations are today world leaders in their respective industries. Arriving on the global scenario subjects corporations to diversified revenue streams in various geographies, thus leading to invoicing in global currencies such as USD, GBP and EUR among others. Similarly, access to various borrowing mechanisms and debt markets has also led to increased non-INR exposure on books. The heightened volatility and inability to predict rupee movements in recent times has led to severe pain on the part of corporations, irrespective of whether they have chosen to hedge their foreign exchange risks or not. In India, there has been an increasing awareness for the need to introduce financial derivatives in order to enable hedging against market risks in a cost effective way. A dynamic foreign exchange market provides businesses with a spectrum of hedging products for effectively managing their foreign exchange risk exposures. As Indian businesses become more global in their approach coupled with globalization of trade and relative free movement of financial assets, risk management through a broad based ‘active and liquid’ foreign exchange market has become a necessity in India.

Current Scenario of Indian Foreign Exchange Market

In the recent past, periods of exchange rate stability have bred complacency. Importers were confident that the Reserve Bank of India (RBI) would intervene to halt any rupee decline where as exporters were of the view that the Rupee has always been over rated and that there is no way that it shall appreciate from the present value. This traditional mindset has kept companies away from hedging their exposures.

Due to the generic corporate reluctance, lack of information & technology and consideration of hedging as unwanted cost centres, companies involved in hedging have mostly gone the conservative way to hedge their exposures, i.e. by entering into forward contracts (FC) with banks, which have been the Authorized Dealers (AD) in foreign exchange Market in India. The limited use and general lack of interest in the available instruments can be explained by the fact that dependence on external sources of funding was limited and the external sector wasn’t really developed.

Going forward, companies do take cognizance of the importance of currency risk management; however, one is not certain how many of the companies are working towards building capacity to deal with this changing scenario. However, many firms still prefer to keep their risk exposures un-hedged as they find the forward contracts as cost centres. The problem is accentuated by the fact that in the Indian context the market for derivatives in India other than forward contracts is very shallow. Nevertheless, new financial derivatives have been allowed in the market to provide for exposures arising out of increased business activity in the external sector.

Way forward

In the current formative phase of the development of the foreign exchange market, as we take a closer look at the initiatives taken by corporate enterprises, it would be worthwhile to provide indicative recommendations on the way forward:

• Make informed hedging decisions: The corporations are recommended to look strategically into their risk exposure and take prudent decisions in hedging. The hedging decisions should be backed by professional treasurers, an efficient back office and good forecasting techniques
• Introduce & use new products: Corporations are also advised to consider going for various new derivatives that are flexible and cost effective. In addition to the traditional “physical” products, such as spot and forward exchange rates, the new “synthetic” or derivative products, including options, futures and swaps, and their use by the corporate sector should be considered prudently. These synthetic products have their market value determined by the value of a specific, underlying, physical product
• Role of Banks: If we examine the role of PSU banks in FX risk management, we observe that although India has witnessed improvement in informational and operational efficiency of the foreign exchange market, this has happened at a halting pace. The banking sector is recommended to recruit specialized personnel for the job with latest technology to deal in the market. They should also endeavour to merge their money market and FX operation and treat it as a separate profit centre for better efficiency

I do believe that the aforementioned steps if implemented can definitely make the FX market deep and vibrant, which will make the working of the corporate sector easier in dealing with the currency exposure. The focus of next generation regulation in domestic securities market should be on inclusive growth, i.e. broad basing or deepening the market with more innovative products and technology for a sustained growth brought out through healthy competition. Whatever path the foreign exchange markets in India takes, it is necessary to keep it aligned with public policy objectives, as exchanges are the mechanism through which market capitalism survives.

Disclaimer: Views are personal

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Foreign Exchange Risk – Case Study

Minimise the impact of currency fluctuations and get the best returns on your international transactions.

Foreign exchange risk can manifest itself in various guises with contrasting transactional, translational, and economic impacts on a business.

It’s important for businesses to understand their risks and are equipped with the policies, processes, and systems for effective management. It’s also important to understand how cost-efficient internal hedges are available, before a derivative solution is considered.

Rochford works with a broad cross-section of corporates and has many years of extensive experience in structuring and negotiating hedging solutions with financial institutions.

For more information, please contact our advisory team.

Rochford worked with a rapidly growing retailer with COGS denominated in Dollars, Sterling and Euros.

They had no official or documented treasury risk management policy in place and their decision making was often ad-hoc or ‘knee jerk’ reactions to the market.

We advised and implemented the following strategies:

• Constructed a hedging policy aligned to the company’s buying cycle.
• Created a process of weekly exposure reporting of a FX risk management committee consisting of the CFO, Head of Buying and Rochford advisors.
• Provided regular, brief weekly meetings to discuss risk management on-going, and monthly policy compliance board reporting.

With our support:

• The company’s budgets and cash flow was protected from a depreciating AUD, and the impact of currency volatility reduced over time.
• Their key staff were finally able to focus on the commercial objectives and value enhancing investments, including developing new product lines and new store roll outs/acquisitions.

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• DOI: 10.47992/ijmts.2581.6012.0062
• Corpus ID: 241141245

Foreign Exchange Risk Management in Indian Commercial Banks: Perspectives of Bankers and Customers

• Published in International Journal of… 6 June 2019
• Business, Economics
• International Journal of Management, Technology, and Social Sciences

2 Citations

Credit risk analysis of canara bank – a case study, risk navigation in finance: a deep dive into silicon valley bank and credit suisse strategies, 15 references, risk management in banking sector - an empirical study, risk management in banks, a study on risks from foreign currency exposure of small and medium enterprises (smes) and their impact on banks, forex risk management by smes and unlisted non-financial firms: a literature survey, managing foreign exchange risk with derivatives, risk management in financial institutions.

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Does Firms Have Impact of Currency Appreciation and Currency Volatility on Market Shares?—Study of Selected Financial and Non-Financial Firms of India

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