Rupee volatility managment by Indian companies

Abstract

The Indian rupee has depreciated by about 17% since the beginning of the year i.e. 2013. But the companies are wary more about the volatility of the rupee rather than the overall decline. It is easier to hedge for the expected rise or decline of the currency as compared to handling the volatilities of a currency. Firms not able to handle the issue might be caught on the wrong foot resulting in wiping out their earnings resulting in sustainability issues in the already intense global competition. In the report, we have tried to look at the forex market structure, various hedging mechanisms available to handle the issue, framework of forex management which companies in general can follow and the best practices. Analysis of the Indian companies, both export and import dependent was done with respect to strategies to hedge against forex fluctuations, to develop insights into their success/failure in doing so and accordingly suggest measures to better handle the issue. This project is divided into two parts. Part A covers overview of exchange markets in India and world & understanding of risk management practices adopted worldwide. Part B contains analysis of Indian companies with respect to managing exchange rate risk. At the end we have summarized the findings from the analysis and made recommendations to improve the risk management of Indian companies and functioning of Indian foreign exchange market.