Preview

Forex with hedging

Powerful Essays
Open Document
Open Document
10219 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Forex with hedging
Chapter 1. Introduction

In 1971, the Bretton Woods system of administering fixed foreign exchange rates was abolished in favour of market-determination of foreign exchange rates; a regime of fluctuating exchange rates was introduced. Besides market-determined fluctuations, there was a lot of volatility in other markets around the world owing to increased inflation and the oil shock. Export Houses struggled to cope with the uncertainty in profits, cash flows and future costs.

It was then that financial derivative – foreign currency, interest rate, and commodity derivatives emerged as means of managing risks facing corporations. In India, exchange rates were deregulated and were allowed to be determined by markets in 1993. The economic liberalization of the early nineties facilitated the introduction of derivatives based on interest rates and foreign exchange.

However derivative use is still a highly regulated area due to the partial convertibility of the rupee. Currently forwards, swaps and options are available in India and the use of foreign currency derivatives is permitted for hedging purposes only.

This study aims to provide a perspective on managing the risk that firm’s face due to fluctuating exchange rates. It investigates the prudence in investing resources towards the purpose of hedging and then introduces the tools for risk management. These are then applied in the Indian context.

The motivation of this study came from the recent rise in volatility in the money markets of the world and particularly in the US Dollar, due to which Indian exports are fast gaining a cost disadvantage. Hedging with derivative instruments is a feasible solution to this situation.

Chapter2. Company Profile

A Banaras bead limited was founded in the year 1940 by Late Kanhaiya Lal Gupta the father of Mr. Ashok Kumar Gupta who is presently leading the company as chairman and Managing Director.
Presently Banaras

You May Also Find These Documents Helpful

  • Powerful Essays

    fluctuations in currency exchange rates, and its effect on forward contracts2. This risk subverts the…

    • 2841 Words
    • 12 Pages
    Powerful Essays
  • Good Essays

    Exchange Rate Risk reflects the danger an unexpected change in the exchange rate between the dollar and the currency in which a project’s cash flows are denominated will reduce the market value of that project’s cash flow. The dollar value of future cash inflows can be dramatically altered if the local currency depreciates against the dollar. (Gitman) A tool to manage this exchange rate risk is an option. An option gives the buyer the right, but not the obligation, to sell a specified amount of foreign currency to an option seller at a fixed dollar price, up to an agreed upon expiration date. Another tool to manage exchange rate risk is a forward. A forward is similar to an option, but the firm will be obligated to make the transaction at a specific rate in a time period of one year.…

    • 672 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Since the global financial crisis began in 2008, many countries’ exchange rates experienced obvious fluctuations, especially some ‘currency depreciations’ in recent year (Kohler, 2010, pp39-50).…

    • 1516 Words
    • 7 Pages
    Powerful Essays
  • Good Essays

    This project attempt to study the intricacies of the foreign exchange market. The main purpose of this study is to get a better idea and the comprehensive details of foreign exchange risk management.…

    • 1409 Words
    • 6 Pages
    Good Essays
  • Good Essays

    Currency risk exposure is the dollar amount that is at risk if exchange rates move in an…

    • 2682 Words
    • 11 Pages
    Good Essays
  • Better Essays

    Currency Derivatives

    • 1366 Words
    • 6 Pages

    Currency derivatives come in to existences as a hedging tool. As against unfavourable appreciation and depreciation of a single currency. Exporter, importer and financial investor have developed a vast range of currency derivative instruments are also used by speculators willing to arrange future currency selling or buying contracts while hoping hoping to buy or sell the currency at favourable anticipated exchange rates in the future. This act of speculator exposed them to the risk of financial fluctuation.…

    • 1366 Words
    • 6 Pages
    Better Essays
  • Good Essays

    Our paper discusses this issue in detail by identifying the pros and consequences. We have first identified the basic definition of hedge fund and its characteristics while operating in the commodity market .The similarities between hedge fund and mutual fund are also discussed. In India, the main rationale behind the commodity market was to provide a hedging option to the consumers or farmers against the future price variations due to…

    • 460 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    * Derivatives were introduced to cover risk that people used to face due to change in economic conditions and the fluctuations in prices of the underlying assets.…

    • 276 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Report on Indiabulls

    • 13114 Words
    • 53 Pages

    The report is submitted as partial fulfillment of the requirement of MBA program of IBS Hyderabad. I, Prof. M Showry, here by authorize the submission of the Project Work titled “Scope And Promotion Of Currency Derivatives With Reference To Indiabulls Securities” undertaken by Mr. Krutarth Mankad (Enrollment Number : 10BSPHH010347) as partial fulfillment of the requirement of MBA Program of IBS Hyderabad. The project work was executed by the student under my guidance and no part of this report has been submitted for any other degree or recognition before.…

    • 13114 Words
    • 53 Pages
    Good Essays
  • Good Essays

    Fera to Fema

    • 18619 Words
    • 75 Pages

    Independence ushered in a complex web of controls for all external transactions through a legislation i.e., Foreign Exchange Regulation Act (FERA), 1947. There were further amendments made to the FERA in 1973 where the regulation was intensified. The policy was designed around the need to conserve Foreign Exchange Reserves for essential imports such as Petroleum goods and food grains. The year 1991 was an important milestone for the Economy. There was a paradigm shift in the Foreign Exchange Policy. It moved from an Import Substitution strategy to Export Promotion with sufficient Foreign Exchange Reserves. The adequacy of the Reserves was determined by the Guidotti Rule, though the actual implementation of the rule was modified to meet our requirements. As a result of measures initiated to liberalize capital inflows, India’s Foreign Exchange Reserves (mainly foreign currency assets) have increased from US$6 billion at end-March 1991 to US$270 billion2 as on 9th November 2007. It would be useful to note that the Reserves accretion can be attributed to large Foreign Capital Inflow that could not be absorbed in the economy. This has been as a result of shift of funds from developed economies to emerging markets like India, China and Russia.…

    • 18619 Words
    • 75 Pages
    Good Essays
  • Good Essays

    Currency Futures

    • 461 Words
    • 2 Pages

    Only 'persons resident in India' may trade in Currency Futures to hedge an exposure to foreign exchange rate risk or otherwise. Any resident Indian or company including banks and financial institutions can participate in the Currency Futures market. At present Foreign Institutional Investors and Non-Resident Indians are not permitted to participate in the Currency Futures market.…

    • 461 Words
    • 2 Pages
    Good Essays
  • Good Essays

    forex management

    • 20304 Words
    • 82 Pages

    Risk Considerations 10.1 Financial Risk 10.2 Business Risk 10.3 Credit or Default Risk 10.4 Country Risk 10.5 Interest Rate Risk 10.6 Political Risk 10.7 Market Risk 10.8 Foreign Exchange Risk 11. Foreign Exchange Exposure 12. Types of Exposures 12.1 Transaction Exposure 12.2 Translation Exposure 12.3 Economic Exposure 13. Techniques for Managing Exposure 13.1 Derivatives (a) Forwards-Based Derivatives (i) The Forward Contract (ii) Swaps (iii) Futures Contracts (b) Options 13.2 Money Market Hedge 13.3 Forward Market Hedge 13.4 Netting 13.5 Matching 13.6 Leading and Lagging 13.7 Price Variation 13.8 Invoicing in Foreign Currency 13.9 Asset and Liability Management 13.10 Arbitrage 14. Strategies for Exposure Management 14.1 Low Risk: Low Reward ©…

    • 20304 Words
    • 82 Pages
    Good Essays
  • Powerful Essays

    Rupee Crisis

    • 1141 Words
    • 5 Pages

    In 1991, India still had a fixed exchange rate system, where the rupee was pegged to the value of a basket of currencies of major trading partners. At the end of 1990, the Government of India found itself in serious economic trouble. The government was close to default and its foreign exchange reserves had dried up to the…

    • 1141 Words
    • 5 Pages
    Powerful Essays
  • Powerful Essays

    the beautiful girl

    • 13572 Words
    • 55 Pages

    Jin, Y., Jorion, P., 2006. Firm value and hedging: evidence from US oil and gas…

    • 13572 Words
    • 55 Pages
    Powerful Essays
  • Powerful Essays

    Derivative Reports

    • 7299 Words
    • 30 Pages

    an effective and less costly solution to the problem of risk that is embedded in the price…

    • 7299 Words
    • 30 Pages
    Powerful Essays

Related Topics