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    A Study On Currency Derivatives in India - An Evidence From FMCG Sector

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    Gowtham Srinivas
    The document discusses currency risk management techniques used in the Indian FMCG sector and their impact on exchange gains and losses. It analyzes foreign exchange cash flows and gains/losses of seven FMCG companies from 2010-2017. The study found that USD and EUR accounted for most currency exposure and forwards were the most widely used and easiest hedging tool, though other derivatives like futures, options and swaps were available.

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    A Study On Currency Derivatives in India - An Evidence From FMCG Sector

    Uploaded by

    Gowtham Srinivas
    7 views1 page
    The document discusses currency risk management techniques used in the Indian FMCG sector and their impact on exchange gains and losses. It analyzes foreign exchange cash flows and gains/losses of seven FMCG companies from 2010-2017. The study found that USD and EUR accounted for most currency exposure and forwards were the most widely used and easiest hedging tool, though other derivatives like futures, options and swaps were available.

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    The document discusses currency risk management techniques used in the Indian FMCG sector and their impact on exchange gains and losses. It analyzes foreign exchange cash flows and gains/losses of seven FMCG companies from 2010-2017. The study found that USD and EUR accounted for most currency exposure and forwards were the most widely used and easiest hedging tool, though other derivatives like futures, options and swaps were available.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    7 views1 page

    A Study On Currency Derivatives in India - An Evidence From FMCG Sector

    Uploaded by

    Gowtham Srinivas
    The document discusses currency risk management techniques used in the Indian FMCG sector and their impact on exchange gains and losses. It analyzes foreign exchange cash flows and gains/losses of seven FMCG companies from 2010-2017. The study found that USD and EUR accounted for most currency exposure and forwards were the most widely used and easiest hedging tool, though other derivatives like futures, options and swaps were available.

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    © All Rights Reserved
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    of 1

    Journal of Commerce & Accounting Research

    8 (3) 2019, 37-46


    http://publishingindia.com/jcar/

    A STUDY ON CURRENCY DERIVATIVES IN


    INDIA - AN EVIDENCE FROM FMCG SECTOR
    Prakash Basanna*, K. R. Pundareeka Vittala**

    Abstract Foreign Exchange Risk management (FERM) involves using both internal and external techniques such as forwards, futures,
    options and swaps which are called as currency derivatives. The firms with greater growth opportunities and tighter financial constraints
    are more inclined to use currency derivatives. Forex market provides various derivative instruments to hedge against currency exposures
    such as currency forwards, options, futures and swaps. The current paper aims at studying various FERM Techniques used in the Indian
    FMCG sector and its impact on exchange gain/losses. For this purpose, foreign exchange cash flows arising out of imports and exports and
    exchange gain/losses of the companies during 2010-2017 of seven sample companies chosen from the FMCG sector is used. It is observed
    from the study that only two currencies-USD and EUR hold command in the Forex market and other currencies are being used minimally.
    It is also noted that there are several currency derivatives available to the business firms such as forwards, futures, options, swaps etc. for
    hedging currency exposure. However, among all these techniques forward contract is considered to be an effective hedging tool and easier
    to understand.
    Keywords: Exchange Inflows and Outflows, Forex, Forwards, Futures, FMCG Sector

    exports in terms of volume. Currently over 80 per cent of the


    INTRODUCTION antiretroviral drugs used universally to encounter AIDS are
    There has been a tremendous growth in International trade delivered by Indian medicinal firms. India continued its top
    after World War-II. During this period, efforts were made to position over China in pharmaceutical exports with a year-
    facilitate free flow of goods and services across the world. As on-year growth of 11.44% to US$ 12.91 billion in FY 2015-
    a result, world trade grew at a faster rate. When a company 16. The Indian pharma industry is likely to grow to US$ 55
    has multinational operations its receivables and payables billion by 2020 thereby evolving as the sixth pharmaceutical
    are denominated in a foreign currency which is subject to market globally.
    currency exposure. It is Foreign Exchange Risk management
    (FERM) which helps to hedge foreign currency receivables REVIEW OF LITERATURE
    and payables. FERM involves using both internal techniques
    such as selection of the right currency for invoicing, The researcher has conducted host of literature survey on
    prepayment and delayed payments of payables, post payment the current topic of the study a sample of which is presented
    of receivables, judicious matching of imports and exports below.
    and external techniques such as forwards, futures, options Belk, P. A and Glaum, M. (1990) concludes with hesitations
    and swaps which are called as currency derivatives. The due to the limited nature of the study, that accounting exposure
    firms with greater growth opportunities and tighter financial was managed actively by the mainstream of respondents,
    constraints are more inclined to use currency derivatives. that transaction exposure management was perceived as the
    German and US firms prefer OTC instruments like swaps, centrepiece of their foreign exchange risk management and
    options and forwards. Between options and forwards, the that the management of economic exposure was subject to
    latter is used more unless the exposure is for a longer period. very varied practices. Further, the surveyed MNCs showed
    The Indian pharmaceutical industry is the third major in a lower degree of concentration than could have been
    terms of size and thirteenth prime in terms of worth, as anticipated on the basis of the relevant literature, and the
    per a report by Equity Master. India is the major supplier majority of respondents described their companies as ‘totally
    of generic drugs which represents 20 per cent of global risk averse’. Makar and Huffman (1997) examined use of

    *
    Professor & Head, Department of Management Studies & Research, Nagarjuna College of Engineering & Technology,
    Bengaluru, Karanataka, India. Email: [email protected]
    **
    Professor & Head, P.G. Department of Commerce, Presidency College, Bengaluru, Karnataka, India.
    Email: [email protected]

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