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

Concise customer education, Here's where most advertisers fall down as well...

Here's where most advertisers fall down as well as you can stand head & shoulders above the crowd Tell your full story. Don't formulate people try to figure out on their own why th

Legal framework, Legal Framework : Section 50 of the Indian Customs Act re...

Legal Framework : Section 50 of the Indian Customs Act requires the exporter to file a declaration in a prescribed form and submit supporting documents to enable the customs autho

Determine the primary editing problem, Determine the primary editing proble...

Determine the primary editing problem One of the primary editing problem concerns with faking of an interview. Such fake interviews are difficult to spot till they come to edit

Analyse how globalisation influenced policies of a bank, Critically evaluat...

Critically evaluate the impact of globalisation (i)  Analyse how globalisation influenced policies and decision making on State Bank of India. (ii) Critically undertake the u

Several factors of cultures to adopt new products, Q. Several factors of cu...

Q. Several factors of cultures to adopt new products? Cultures are likely to adopt new products more quickly than others based on several factors: Modernity : The degree to

Market research for exploring market opportunities, XYZ mini-mart is a well...

XYZ mini-mart is a well-established retail chain in Singapore or your country of your choice, selling grocery and household goods. Currently, it has 20 outlets and mostly they are

Introduction-exchange control, INTRODUCTION : Exchange Control is another ...

INTRODUCTION : Exchange Control is another important area of international trade. The term exchange control applies to the rules and regulations designed to regulate transactions

Export of passenger baggager, Export of Passenger Baggage: Bonafide person...

Export of Passenger Baggage: Bonafide personal baggage may be exported along with the passenger. It may also be exported within one year before or after the Passenger's departure

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