A STUDY ON FOREIGN EXCHANGE

Abstract

FOREIGN EXCHANGE involves using both internal and external techniques such as forwards, futures, options, and swaps that are called as currency derivatives. The firms with greater growth opportunities and tighter financial constraints are more inclined to use currency derivatives. The Foreign market provides various derivative instruments to hedge against currency exposures such as currency forwards, options, futures, and swaps. The current article aims at studying various FERM techniques used in the Indian stock market industry 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 from oct 2022 to dec 2022. It is observed from the study that only two currencies—USD and EUR—hold command in the Foreign 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, and swaps for hedging currency exposure. However, among all these techniques, forward contract is considered to be an effective hedging tool and easier to understand.