Measurement of Foreign Currency Risk Exposure of Top Five BSE Sensex 30 Companies

Author(s)

Ragul Adhithya and Dr Rameesha Kalra

Affiliations

1. Student, BBA, Department of Management Studies, CHRIST (Deemed to be University), Bangalore
2. Assistant Professor, Department of Management Studies, CHRIST (Deemed to be University), Bangalore

Abstract

Foreign exchange currency risk exposure is relevant to all firms operating in the market. Every firm faces direct risk exposure from their operations and indirect risk from the competition, interest rates and other factors. Also, in the growing markets, firms look to expand their markets and they are posed with risk from currency exchange rate movements. Thus, it is a necessity for all firms to analyse their risk exposure from time to time and enhance its performance. This paper aims to measure the risk exposure of BSE Sensex 30 companies which have large market capitalisation and the risk exposure is measured with the four most traded currencies. The paper finds that only 16% of the firms faced significant exposure from exchange rate movements. The degree of effect and the currency variables differ from firm to firm due to non-homogeneity of the firms. Large firms usually measure the risk exposure and take appropriate hedging for them. Only US Dollar and Pound have impact on some of the firms.

Keywords

Foreign Currency, Exchange Rate, Risk Exposure, BSE Sensex 30, Economic Risk

References

1. Aggarwal, R. & Harper, J. T., 2010. Foriegn exchnage exposure of ‘domestic’ corporations. Journal of International Monet and Finance.
2. Anon., 2018. Database on Indian Economy. [Online].
3. Anon., 2018. Derivative FAQ. [Online] Available at: https://www.bseindia.com/markets/ Derivatives/DeriReports/FAQs.aspx
4. Anon., 2018. India GDP. [Online] Available at: https://tradingeconomics.com/india/gdp
5. Anon., 2018. Indian Economy. [Online] Available at: https://www.ibef.org/economy/ indian-economy-overview
6. Anon., 2018. What is the nominal and real exchange rate? [Online] Available at: https:// www.cnb.cz/en/faq/what_is_the_nominal_and_ real_exchange_rate.html
7. Anon., 2018. World Trade Statistical Review 2018, s.l.: World Trade Organisation.
8. Anon., 2018. WSDB. [Online] Available at: http://stat.wto.org/CountryProfile/ WSDBCountryPFView.aspx?Country=IN& Language=F
9. Bartov, E., Gordon, M. B. & KauV, A., 1994. Earnings Expectations, and the exchnage rate exposue effect. Journal of Finance.
10. Bodnar, G.M. & Wong, M.H.F., 1999. Estimating Exchange Rate Exposures. The Johns Hopkins University, Graduate School of Business.
11. Choi, J.J. & Prasad, A.M., 1995. Exchange Risk Sensitivity and Its Determinants. Financial Management.
12. Chue, T.K. & Cook, D., 2004. Emerging Market Exchange-Rate Exposure.
13. Dhagat, A. & G, R.R., 2016. Measurement of Foreign Exchange Exposure for Selected. Amity Journal of Finance.
14. Dominguez, K.M. & Tesar, L.L., 2001. A Re-Examination of Exchange Rate Exposure. Department of Economics and NBER, University of Michigan.
15. Dosanjh, K.S., 2010. Currency exposure: Risk management & Stock return. Copenhagen Business School.
16. Griffin, J.M. & Stulz, R.M., 2001. International Competition and Exchange Rate Shocks. The Review of Financial Studies.
17. Habibnia, A., 2013. Exchnage Rate Risk Measurement and Management. Virginia Polytechnic Institute and State University.
18. Helhel, Y., 2015. Exchange Rate Exposure and Its Determinants on Performance of Manufacturing Firms in Turkey. Research Journal of Finance and Accounting.
19. Jay, J.C. & Prasad, A.I., 1995. Exchnage Rate Sensitivity and its Determinants: A Firm and Analysis of US Multinationals. Financial Management.
20. Muller, A. & Verschoor, W.F., 2007. Asian foreign exchange risk exposure. Journal of the Japanses and International Economics.
21. Sarkis, S.D. & Shu, C., 2008. Corporate Strategies for Currency Risk Management.
22. Sukor, M.E.A., 2014. Exchange rate exposure of developed and emarging markets: A review. International Review of Research in Emerging Markets and the Global Economy (IRREM).