Exchange Rate Exposure and Usage of Foreign Currency Derivatives by Indian Nonfinancial Firms

Krishna Prasad () and K. R. Suprabha ()
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Krishna Prasad: Justice K S Hegde Institute of Management
K. R. Suprabha: School of Management, National Institute of Technology Karnataka

A chapter in The Impact of Globalization on International Finance and Accounting, 2018, pp 71-80 from Springer

Abstract: Abstract This paper investigates the usage of currency derivatives and its impact on the exchange rate exposure. A sample of 387 nonfinancial Indian firms listed in the National Stock Exchange of India were studied for a period of 5 years from 2011–2012 to 2015–2016. The currency derivatives data was collected from the annual reports of the sample firms, and the stock price data was collected from Ace Equity and Centre for Monitoring Indian Economy (CMIE) database Prowess. The results of the study indicate that the currency forward contract is the most preferred hedging instrument among the sample firms. The Indian firms showed the lower interest in exchange-traded instruments especially currency futures. This is in spite of the growth in the third-generation innovative and low-cost derivative instruments. This study also provided evidence that hedging using currency derivatives decreased the firms’ foreign exchange exposure level, while the use of foreign currency borrowing was found insignificant in decreasing the firm’s level of currency exposure.

Keywords: Currency derivatives; Exchange rate exposure; Currency forward; Exchange-traded derivatives (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-68762-9_8

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DOI: 10.1007/978-3-319-68762-9_8

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