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Study of currency risk and the hedging strategies

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  • Tiwari, Anuradha

Abstract

The globalization of financial markets achieved by dynamic technological advancements, financial market liberalisation and the departure of capital controls have urged all MNC with foreign money streams the need to manage foreign exchange exposure risks introduced by a volatile exchange system. Today, multinational firms are striving to create methods and methodologies for an efficient and effective exchange risk management. The foreign exchange strategy embraced is essential to an MNC in the present-day condition because of the great inconstancy in transaction rates and needs to advance with the dynamic structure of the organisation. Further, given the way that organisations are continually signing commercial and business contracts titled in foreign currencies, precise estimation and supervision of exposure and economic risks have turned out to be vital to the success of an MNC. This paper review the traditional types of exchange rate risks faced by the firms due to the surge of global quest for trade across borders. The paper further explain the importance of risk management strategies with special reference to hedging and outline the various hedging strategies both external and internal used by Multinational companies (MNC’s).

Suggested Citation

  • Tiwari, Anuradha, 2019. "Study of currency risk and the hedging strategies," MPRA Paper 93955, University Library of Munich, Germany, revised 23 May 2019.
    • Handle: RePEc:pra:mprapa:93955
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    File URL: https://mpra.ub.uni-muenchen.de/93955/1/MPRA_paper_93955.pdf
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    References listed on IDEAS

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    1. Michael G. Papaioannou, 2006. "Exchange Rate Risk Measurement and Management: Issues and Approaches for Firms," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 4(2), pages 129-146.
    2. Fuad A Abdullah, 1985. "Development of an Advance Warning Indicator of External Debt Servicing Vulnerability," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 16(3), pages 135-141, September.
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    Cited by:

    1. Maryam IRANI & Ayhan KAPUSUZOGLU & Nildag Basak CEYLAN, 2022. "The Review Of Shadow Banking In The World," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 21(3), pages 65-72.

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    More about this item

    Keywords

    Keywords: Exposure; currency risk ; hedging ; exchange rate; translation ; transaction; operating .;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G01 - Financial Economics - - General - - - Financial Crises
    • G2 - Financial Economics - - Financial Institutions and Services
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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