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 are responses of researcher, What are responses of researcher Whe...

What are responses of researcher When responses are missing or inappropriate, researcher has three choices: (a) Researcher can sometimes detect proper answer by reviewing t

Marketing inteligence, Evaluate the relationship between brand loyalty, cor...

Evaluate the relationship between brand loyalty, corporate image and repeat purchase

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

Objectives-procedures for claiming export incentives, OBJECTIVES After ...

OBJECTIVES After studying this unit, you should be able to : 1.  Explain the need for procedural formalities of export incentives 2.  Describe the process of claiming dut

Identification and measurement of exchange risks, IDENTIFICATION AND MEASUR...

IDENTIFICATION AND MEASUREMENT OF EXCHANGE RISKS : In foreign trade, you may be either an exporter or an importer. Let us now examine what is the exchange risk to which an exporte

Customs clearance formalities , CUSTOMS CLEARANCE FORMALITIES : 'Under Sec...

CUSTOMS CLEARANCE FORMALITIES : 'Under Section 40 of the Indian Customs Act, an overseas carrier cannot permit loading of goods without permission from the customs authorities. Th

Examine a range of marketing strategy , Examine a range of general or marke...

Examine a range of general or marketing strategy options (a) Discuss a variety of general and marketing strategic options which are available to your organisation and evaluate t

Manufacturers of plastic household items, Trans-European Plastics (TEP) is ...

Trans-European Plastics (TEP) is one of Europe's largest manufacturers of plastic household items. Its French factory makes a range of over 500 products that are sold to wholesaler

Explain psychoanalytical model of consumer behaviour, Q. Explain Psychoanal...

Q. Explain Psychoanalytical model of consumer behaviour? This model is on the basis of work of psychologists who were concerned with personality. They were of the outlook that

Ecgc schemes for covering exchange risks, ECGC SCHEMES FOR COVERING EXCHANG...

ECGC SCHEMES FOR COVERING EXCHANGE RISKS: The ECGC has evolved two schemes to provide greater protection to exporters of capital goods and turnkey project against the risk of fluc

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