Methods of dealing with foreign exchange risks, Marketing Research

Assignment Help:

METHODS OF DEALING WITH FOREIGN EXCHANGE RISKS

A firm can deal with foreign exchange risks in the following ways:

1) Taking Risk: The firm may decide to bear the risk if the foreign currency depreciates or appreciates and pocket the gain resulting therefrom. Bigger firms having both imports and exports can match the losses and gains on exports with gains or losses on imports.

Matching will ultimately minimise the losses and gain if any. Matching is easier in a large diversified firm than in a firm dealing in one product only. Large trading houses and export houses as also STC and MMTC can do it easily. An important point to be mentioned here is that losses and gains due to exchange fluctuations are taken into account for tax purposes. Thus assuming that the rate of tax is 50 per cent, the impact of losses due to exchange fluctuations, if any is reduced to 50 per cent only.

2) Using a Hedging Clause: The exporter can use a hedging clause in the contract with the customer/supplier providing for a revision of price in the event of a significant change. This will tend to protect both parties as movement in exchange rates may both be the upwards and downwards. While you protect yourself against a loss, you lose the possibility of making a profit. However, the customer/supplier may not agree for such a clause in short-term agreement. But it is more easily possible in long-term contracts.

3) Entering into Forward Contract: Forward contracts are deals between two parties who enters into the contract for buying or selling of the foreign currency at a future date. The firm can enter into a forward contract with his banker. If it is an importer, it can purchase foreign currency to be delivered in future (forward purchase). If it is an exporter, it can sell foreign currency to be delivered in future (forward sale). This will ensure that the firm receives or pays a certain amount of rupees respective of changes in the value of foreign currency involved.


Related Discussions:- Methods of dealing with foreign exchange risks

What is historical research, What is Historical Research Any research ...

What is Historical Research Any research that makes use of observations based on past events is termed as historical approach.

Marketing segment, How might this medical group tailor its marketing mix to...

How might this medical group tailor its marketing mix to appeal to this segment?

Consumer involvement, Consumer Involvement : Involvement demotes to ...

Consumer Involvement : Involvement demotes to a person's perceived relevance of the object based on their inherent needs and values and interests. Involvement is able to

Exemption under bond under rule 13, Exemption under Bond under Rule 13: ...

Exemption under Bond under Rule 13: The procedure under this Rule is similar to the one under Rule 12, except that under this Rule appropriate bond is to be executed. Under t

Maslows need hierarchy theory, Q. Maslow's need hierarchy theory ? >>The...

Q. Maslow's need hierarchy theory ? >>The ultimate state in the hierarchy is hard to achieve. Certain requirements can be placed in different areas >>Of the hierarchy example

Market research for international marketing, Problem 1 List out the sec...

Problem 1 List out the secondary sources of information while pursuing market research. Market research for international marketing Secondary sources of information

Export of imported goods, Export of Imported Goods: Goods imported may be ...

Export of Imported Goods: Goods imported may be exported in the same or substantially the same form, without a licence provided they are not under the Negative Lists. Export of su

Explain the marketer role, Q. Explain the Marketer role? _ Marketers t...

Q. Explain the Marketer role? _ Marketers try to create products as well as services that will provide the desired benefits that permit the consumer to reduce the tension.

Financial guarantees, FINANCIAL GUARANTEES: Exporters require adequate fin...

FINANCIAL GUARANTEES: Exporters require adequate financial support from banks to carry out their export contracts; ECGC's guarantees protect the banks from losses on account of th

Bill rate- exchange rate, Bill Rate : Bill rate may also be either bill ...

Bill Rate : Bill rate may also be either bill buying rate or bill selling rate. Let us discuss them in detail. i) Bill Buying Rate: This rate is applied when a foreign bill is p

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd