Buchhaltung und Marketing

Exchange Rate Exposure of Indian Firms Using Capital Market Approach

Abstract

Prasad K and Suprabha KR

The unintuitive movement in the exchange rates will expose the firms involved in international trade to exchange rate exposure. The exchange rate exposure cannot be eliminated; however, it can be effectively managed. Currency derivatives are extensively used to manage the short term exposures and strategic decisions to manage the long term exposures. The past researches conducted on exchange rate exposure management indicate that managing the exchange rate exposures will increase the value of the firm. Therefore, no firms involved in global trade could afford to demine the importance of managing exchange rate exposures. The present research attempts to measure the level of exchange rate exposure of the firms in India. A sample of 76 non-financial companies listed in CNX100 index of NSE was selected as sample and the data for a period of one year is being studied. The results of the study are 21 percent of the sample firms are significantly exposed to foreign exchange risk out of which 25 percent had positive coefficients and 75 percent of the firms had negative coefficients. 57 percent of the firms from Software and IT industry and 15 percent of the firms from mining, refinery and petroleum industry were significantly exposed to foreign exchange risk. JEL Code: F31