Study of Currency Risk and the Hedging Strategies

  • Anuradha R. TIWARY GD Goenka University, Gurgoan, India

Abstract

The globalization of financial markets achieved by dynamic technological advancements, financial market liberalization 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 organization. Further, given the way that organizations 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 explains 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).

References

[1] Abdullah, F. 1985. Development of an advance warning indicator of external debt servicing vulnerability. Journal of International Business Studies, 16(3): 135-141.
[2] Bogicevic, J. 2013. Accounting implications of foreign currency transactions translation and hedging. Ekonomski Horizonti, 15(2): 133-148. Available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.881.9167& rep=rep1&type=pdf
[3] Cavusgil, T., Ghauri, P.N., and Akcal, A.A. 2013. Doing Business in Emerging Markets. London, UK: Sage Publications. ISBN: 978-1-84920-154-4, 416 p.
[4] Daniels, J. 2010. International Business Environment and Operations. Delhi: Dorling Kindersley, 767-769 pp.
[5] Daniels, J., Radebaugh, L., and Sullivan, D. 2010. International Business: Environment and Operations. Prentice Hall. ISBN: 978-013212842, 888 p.
[6] Dow, B., and Kunz, D. 2010. Accessing international capital markets at SLC. Journal of the International Academy for Case Studies, 16(3): 125 –130.
[7] Eiteman, D., Stonehill, A., Moffett, M. 2016. Multinational Business Finance. Harlow, Essex, England, Pearson International; 14th Edition, ISBN: 978-1292097879.
[8] Eiteman, D., Stonehill, A., Moffett, M. 2011. Multinational Business Finance. 12th Edition, Pearson. ISBN: 978-8131-75932-5, 629 p.
[9] Horcher, K.A. 2005. Essentials of Financial Risk Management, New York, John Wiley & Sons, Inc. ISBN: 978-0-471-70616-8, 257 p.
[10] Hull, J.C. 1997, Options, Futures, and other Derivatives, Upper Saddle River, New Jersey, Prentice-Hall International, Inc. ISBN: 978-0-132-64367-2, 572 p.
[11] Law, J. 2014. A Dictionary of Finance and Banking, 5th Edition, OUP Oxford, ISBN: 978-0-199-66493-1, 491 p.
[12] Levinson, M. 2005. Guide to Financial Markets, London, The economist in association with Profile Books Ltd. ISBN: 978-1-847-65953-8. Available at: https://media.economist.com/sites/default/files/pdfs/Guide_to_Financial_Markets _6e.pdf
[13] Loomis, C.J., Burke, D. 2012. Derivatives: The risk that still won’t go away (Fortune 2009). Fortune Magazine, 160(1): 54–60.
[14] Madura, V. 2011. International Financial Management. 3rd Edition, Cengage Learning, ISBN: 978-0-53848-296-7, 752 p.
[15] Madura, J., and Mccarty, D.E. 1989. Research trends and gaps in international financial management: A note, Management International Review, 29(2): 75-79.
[16] Mishra, A.K. 2016. Transaction Exposure Management – Part 1, Module 22, Transaction NPTEL International Finance Vinod Gupta School of Management, IIT. Kharagpur. Available at: https://nptel.ac.in/courses/110105031/ pr_pdf/Module-22%20pdf..pdf
[17] Papaioannou, M. 2006. Exchange rate risk measurement and management: Issues and approaches for firms. IMF Working Papers, 06(255), 1 p.
[18] Pike, R., Neale, B. 1999. Corporate Finance and Investment, Pearson Education, Limited, ISBN: 978-0-273-69561-5. Available at: https://books.google.ro/books?id=8gDLoB9-CpQC&pg=PA653&lpg=PA653&dq=Corporate+ Finance+and+Investment+1999&source=bl&ots=sEGtujTxqN&sig=ACfU3U1LgQlVtJLgh7q5CuCMNnce5qqCPQ&hl=en&sa=X&ved=2ahUKEwib6f2d2ZTjAhXysosKHa_0BdoQ6AEwBHoECAkQAQ#v=onepage&q=Corporate%20Finance%20and%20Investment%201999&f=false
[19] Rao, R.K.S., Smith, S.D., and Shapiro, A.C. 1983. Multinational financial management. The Journal of Finance, 38(5): 1682 - 1684.
[20] Soenen, L.A., and Madura, J. 1991. Foreign exchange management - A strategic approach, Long Range Planning, 24(5): 119-124.
[21] Vij, M. 2005. The determinants of country risk analysis: An empirical approach case. Journal of Management Research, 5(1): 20-31.
*** NSE 2019. An investment called India. Currency options. Available at: https://www.nseindia.com/invest/resources/ download/prs_optcur_eng_br.pdf
Published
2019-08-08
How to Cite
TIWARY, Anuradha R.. Study of Currency Risk and the Hedging Strategies. Journal of Advanced Studies in Finance, [S.l.], v. 10, n. 1, p. 45-55, aug. 2019. ISSN 2068-8393. Available at: <https://journals.aserspublishing.eu/jasf/article/view/3787>. Date accessed: 29 mar. 2024. doi: https://doi.org/10.14505//jasf.v10.1(19).05.
Section
Journal of Advanced Studies in Finance