Management of forex risk exposure: A study of SMEs and unlisted non-financial firms in India

Abstract

The factors affecting the force of Currency Risk or Forex Risk are macro in nature but directly/indirectly affect the financial position of a company. Hence it is imperative for the companies having any kind of Forex risk exposure to manage such risk carefully. The present study is destined to investigate the awareness level of SMEs in India regarding Forex Risk by taking a sample of 68 SMEs having exposure to Forex risk and data for the same has been collected through a structure questionnaire. The findings of the study have clearly indicated that greater part of the sampled manufacturing units have Forex risk exposure in US Dollar and maximum of these manufacturing units do not have a mechanism to measure the Forex risk exposure. A large variety of hedging instruments prevailing in Indian financial market system to hedge the Forex risk are available for hedging, but the small and medium enterprises prefer to use only currency derivative contracts available on Over-the-Counter only that too in the form of forward contracts. These enterprises are not using complex and more risky hedging instruments like cash flow matching, asset liability management, futures, swaps, options structured derivatives or hybrid derivatives. Steps need to be taken at institutional level to make other instruments as part of mainstream of risk and hedging strategies of SMEs. Succinctly, it can be stated that there is lack of awareness in SMEs regarding mechanism to measure Forex risk and Forex risk management strategies. � serials publications Pvt. Ltd.