Management of currency exposure by business enterprises in India an empirical study

Abstract

Currency exposure is a serious problem that necessarily bothers business newlineenterprises engaged in multinational business anywhere in the world. newlineInterestingly, this problem did not initially bother the Indian business enterprises newlinebecause of the policy of constant predetermined parity value of Indian rupee newlineagainst international currencies, adopted by the government of India. Even after newlinefloating of Indian rupee in international currency market, this problem did not newlinebother Indian exporters because of continued depreciation of Indian rupee newlineagainst other currencies until 2003. However after 2003, the continuous and newlineuncertain appreciation of Indian rupee against other currencies, especially newlineAmerican dollar has made currency exposure a crucial problem not to be taken newlinelightly by Indian business enterprises engaged in multinational business. It is newlineinteresting, at this juncture, to study how seriously this problem is felt by Indian newlineexporters and how much are they prepared to tackle this growingly significant newlineproblem. newlineThe present empirical study is undertaken with an objective of understanding and newlineevaluating the management of currency exposure as practiced by Indian newlinebusiness enterprises engaged in multinational business. The study is based on newlinethe response of ninety business enterprises exposed to foreign currency risk. newlineThe present study reveals that the problem of currency exposure is not taken by newlinethe Indian enterprises with the seriousness which it deserves and most of them newlineplead their (at least partial) ignorance and unfamiliarity with respect to the newlineneeded tools and techniques to tackle the problem of currency exposure. The newlinerespondent enterprises express their displeasure about the government support newlinewhich is essential to mitigate and tackle the problem. They look forward for more newlineactive role by the RBI in this regard. newlineIt is suggested that the problem might become more serious due to the growing newlinedependence of Indian business enterprises on export trade and also the newlineprogressive trend of rupee appreciation.