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BRM Research Paper review || Abhijit Das ||

2016PGP063
Title: Hedging Practices Used by Indian Companies in Managing Foreign
Exchange Risk

Author: Hiren Maniar

Objective: The author has studied the hedging practices for managing foreign
exchange risk of 50 export oriented Indian companies on various parameters like
hedging coverage, hedging policy decision, hedging tenure, hedging
instruments, number of currencies for hedging, hedging approach and
involvement, hedging strategies execution and hedging benefits and
implementation of their hedging practices.

Model: A questionnaire is prepared and answers were obtained from 50 export


oriented Indian companies across various sectors. A simple percentage analysis
of the answers received were done using Microsoft excel and SPSS (Statistical
Package for Social Sciences) using methods and techniques such as percentages,
averages, frequencies, ranking method along with correlation analysis and
analysis factor.

Findings:

Hedging practices and involvement: It is seen that around 50% of


companies are fully involved, 30% are partially involved and the remaining
20 % were never involved at all. This shows that there are companies
which never attempted in foreign exchange or hedging practices.
Hedging Assessment and Coverage: It is seen that 25% of the companies
have adequate hedging assessment capacity, 55% have partial hedging
assessment capacity, 15% have weak hedging assessment capacity and
5% are unable to access hedging assessment capacity.
In terms of hedging coverage, 65% of Indian companies are more
skewed towards toward current revenue and balance sheet exposure
compared to 5% of Indian companies expect revenue from long term
projects.
Hedging Policy Decision: 40% of companies have a detailed hedging policy
and guidelines and staffs to look after it. 35% of companies are
considering the option of hedging but presently has no hedging policy
defined. 25% of companies have no hedging policies at all.
Hedging Tenure and Ratio: It is seen that 55% of companies have taken
covers (hedging tenure) within 12 months tenure. The longer-term hedges
are not often in the market.
Around 40% of companies doesnt have a foxed hedging ratio
and only 5% have a fixed 100% hedging ratio.
Selection of Hedging Instruments: 55% companies prefer forward
instrument, 20% futures instrument, 15% options instrument and only
10% prefers Swaps instrument.
Hedging Execution Strategy: In general, it demonstrates that exclusive
35% of Indian organizations are executing supporting technique
appropriate from the season of submitting offer and they can fence
against any inopportune instability in remote trade showcases in much
better position ideal from offering stage; rest of the organizations are
exceptionally presented to unpredictability in outside trade markets.
Hedging Impact on Financial Performance: 40% have felt significant impact
on their financial performance, 35% with no significant impact and 25%
were unable to measure this attribute
Hedging Benefits: 40% have fully benefited from hedging practices, 25 %
feels moderately and have scope of improvement, 25% feels moderately
and 15% believe they have not benefitted at all.
Foreign Exchange Currency Mix: It is seen for the selected companies, the
most important currency is the USD followed by Euro, GBP, JPY.

Conclusion: The study recommends using a systematic approach to hedging


practices and use of diverse hedging strategies like optimum hedging ratio,
hedging execution, cross currency hedging. A hedging policy is fundamental for
the company and it is a must to have a clear framework for hedging practices for
good results.

Overall it is a good research paper. The various parameters for analysing the
research paper are as follows:

1. Purpose clearly defined: The author has clearly defined the purpose of
the study. The author studied the various hedging practices followed by 50
export oriented companies and their outcomes.
2. Research Process Detailed: The author has explicitly explained the
research process. The steps are also mentioned clearly.
3. Research design thoroughly planned: The author explains the various
steps in sampling, questionnaire preparation, survey and statistical
analysis. The author also explains the data and methodology for the
research under a separate heading.
4. High ethical standards applied: The author has carried out the with
the highest standards of ethics. The sample of 50 companies was chosen
applying certain selection parameters for ensuring effectiveness of the
research. The data was also collected properly and through proper
channels.
5. Limitations frankly revealed: The author has mentioned the limitations
of the research under a heading. He emphasises on the limitations based
on the reliability of information/opinion gathered for the research
6. Adequate analysis for decision makers needs: The sample
companies chosen, the quality of questions in questionnaire, the literature
survey and the analysis done by the author shows that adequate analysis
has been done.
7. Findings presented unambiguously: The author has clearly mentioned
the findings. The author has also explained the findings explicitly from the
analysis of the answers from the questionnaire.
8. Conclusions justified: The author has concluded properly from his
findings from questionnaire answers and literature survey.
9. Researchers experience reflected: The author has used his previous
experiences to identify the research objective and proceeding to prepare a
good questionnaire.