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

Literature search procedure, The above table shows that a researcher has to...

The above table shows that a researcher has to review the various kinds of literature relating to the selected field of study. How can be identify the related materials? This resea

How to apply for assignment help tutor, I want to get job as assignment sol...

I want to get job as assignment solver, how to apply, Please let me know?

Institutional framework , INSTITUTIONAL FRAMEWORK : Institutional framewor...

INSTITUTIONAL FRAMEWORK : Institutional framework for providing finance comprises Reserve Bank of India, Commercial Banks, Export Import Bank of India and Export Credit and Guaran

Usage segmentation, Usage Segmentation Marketers are familiar with that ...

Usage Segmentation Marketers are familiar with that the occasion or situation frequently determines what consumers will purchase or consume. For this reason they occasionally fo

Write Examination Format, Question: 1- I put an order to ExpertsMind and m...

Question: 1- I put an order to ExpertsMind and make a payment today. When will the writer of ExpertsMind complete and send back the complete assignment to me? 2- My school forbids

Abstract construct, What is the difference between abstract construct and c...

What is the difference between abstract construct and concrete variable?

Negotiation of export documents under letters of credit, Negotiation of Exp...

Negotiation of Export Documents under Letters of Credit : Where the exports are under letter of credit arrangements, the banks will negotiate the export bills provided it is drawn

Me, what is the best way to obtain information about what consumers actuall...

what is the best way to obtain information about what consumers actually do

What role is played by memory in consumer behavior, Q. What role is played ...

Q. What role is played by memory in consumer behavior ? Learning involves a change in the content or else organization of long term memory and/or behaviour. The initial part of

Explain nonprobability and probability sampling techniques, Provide a short...

Provide a short note highlighting major differences between nonprobability and probability sampling techniques? Answer Probability sampling is more robust in comparison as

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