Currency Risk Management
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Symbiosis Institute of Management Studies
Research Paper
Currency Risk Management
Faculty: Prof. SK Vaze
Submission Date: 20th September 2012 Submitted by:
Karisma Rawat C-06
Prableen Kaur C-08
Renu Balwada C-26
Rahul Gadh C- 33
Varun toshniwal C-35
CURRENCY RISK MANAGEMENT
INTRODUCTION
Currency or Exchange rate risk management is an integral part in every firm’s decisions about foreign currency exposure. Currency risk hedging strategies entail eliminating or reducing this risk, and require understanding of both the ways that the exchange rate risk could affect the operations of economic agents and techniques to deal with the consequent risk implications.
Selecting the appropriate hedging strategy is often a daunting task due to the complexities involved in measuring accurately current risk exposure and deciding on the appropriate degree of risk exposure that ought to be covered. The need for currency risk management started to arise after the break down of the Bretton Woods system and the end of the U.S. dollar peg to gold in 1973.
The issue of currency risk management for non-financial firms is independent from their core Business and is usually dealt by their corporate treasuries. Most multinational firms have also risk committees to oversee the treasury’s strategy in managing the exchange rate (and interest Rate) risk.
This shows the importance that firms put on risk management issues and techniques. Conversely, international investors usually, but not always, manage their exchange rate risk independently from the underlying assets and/or liabilities. Since their currency exposure is related to translation risks on assets and liabilities denominated in foreign currencies, they tend to consider currencies as a separate asset class requiring a Currency overlay mandate.
It can be argued that prudent management of multinational firms requires currency risk hedging for their foreign
Symbiosis Institute of Management Studies
Research Paper
Currency Risk Management
Faculty: Prof. SK Vaze
Submission Date: 20th September 2012 Submitted by:
Karisma Rawat C-06
Prableen Kaur C-08
Renu Balwada C-26
Rahul Gadh C- 33
Varun toshniwal C-35
CURRENCY RISK MANAGEMENT
INTRODUCTION
Currency or Exchange rate risk management is an integral part in every firm’s decisions about foreign currency exposure. Currency risk hedging strategies entail eliminating or reducing this risk, and require understanding of both the ways that the exchange rate risk could affect the operations of economic agents and techniques to deal with the consequent risk implications.
Selecting the appropriate hedging strategy is often a daunting task due to the complexities involved in measuring accurately current risk exposure and deciding on the appropriate degree of risk exposure that ought to be covered. The need for currency risk management started to arise after the break down of the Bretton Woods system and the end of the U.S. dollar peg to gold in 1973.
The issue of currency risk management for non-financial firms is independent from their core Business and is usually dealt by their corporate treasuries. Most multinational firms have also risk committees to oversee the treasury’s strategy in managing the exchange rate (and interest Rate) risk.
This shows the importance that firms put on risk management issues and techniques. Conversely, international investors usually, but not always, manage their exchange rate risk independently from the underlying assets and/or liabilities. Since their currency exposure is related to translation risks on assets and liabilities denominated in foreign currencies, they tend to consider currencies as a separate asset class requiring a Currency overlay mandate.
It can be argued that prudent management of multinational firms requires currency risk hedging for their foreign