A RESEARCH STUDY ON FOREIGN EXCHANGE MARKET AND RISK MITIGATION STRATEGIES IN INTERNATIONAL TRADING
Indian economy in the post-liberalisation era has witnessed increasing awareness of the need for introduction of various risk management products to enable hedging against market risk in a cost effective way. This industry-wide, cross-sectional study concentrates on recent foreign exchange risk management practices and derivatives product usage by large non-company Indian-based firms. The study is exploratory in nature and aims at an understanding the risk appetite and FERM (Foreign Exchange Risk Management) practices of Indian corporate enterprises. This study focuses on the activity of end-users of financial derivatives and is confined to 501 non-company corporate enterprises. A combination of simple random and judgement sampling was used for selecting the corporate enterprises and the major statistical tools used were Correlation and Factor analysis. The study finds wide usage of derivative products for risk management and the prime reason of hedging is reduction in volatility of cash flows. VAR (Value-at-Risk) technique was found to be the preferred method of risk evaluation by maximum number of Indian corporate. Further, in terms of the external techniques for risk hedging, the preference is mostly in favour of forward contracts, followed by swaps and cross-currency options This article throws light on various concerns of Indian firms regarding derivative usage and reasons for non-usage, apart form techniques of risk hedging, risk evaluation methods adopted, risk management policy and types of derivativesused. Firms operating in international business involve multiple foreign currencies. The importance of the study is to know the features of foreign exchange and the factors creating risk in foreign exchange transactions and the techniques used for managing that risk. The objective of the research paper is used to understand the international trading and foreign exchange risk involved in the business and finding a technique to minimize the risk associated with it. The data for this research is obtained from company and analysis is done on the basis of company balance sheet and profit & loss A/C of the company and the findings of this research would give an idea to minimize the foreign exchange risk in their business.