An Empirical Study of Forex Risk Management Strategies

Indian Journal of Finance, Vol. II, No. 8, December 2008

14 Pages Posted: 18 Jan 2009

See all articles by Mihir Dash

Mihir Dash

Alliance University - School of Business

Mahesh Kodagi

Indusind Bank Limited - Risk Management

Vivekanand B. Y.

Fiserv India

Narendra Babu

affiliation not provided to SSRN

Date Written: April 15, 2008

Abstract

There are a variety of strategies which are designed to manage foreign exchange risk. Each of them, however, is constructed under specific assumptions, for a specific risk profile. It is often the case that several strategies are applicable to a given scenario. The question arises as to which strategy would be expected to yield the best results in a given scenario.

The current study addresses this issue empirically, using a set of simulated foreign exchange cash flows to compare the profits resulting from the use of different foreign exchange risk management strategies. The risk management strategies considered for the study are: forward currency contacts, currency options, and cross-currency hedges. The study analyzes and evaluates these foreign exchange risk management strategies to find out which of the strategies is appropriate in particular situations.

Keywords: foreign exchange risk, risk management strategies, forward currency contracts, currency options, cross-currency hedge

JEL Classification: F31, G12

Suggested Citation

Dash, Mihir and Kodagi, Mahesh and B. Y., Vivekanand and Babu, Narendra, An Empirical Study of Forex Risk Management Strategies (April 15, 2008). Indian Journal of Finance, Vol. II, No. 8, December 2008. Available at SSRN: https://ssrn.com/abstract=1326462

Mihir Dash (Contact Author)

Alliance University - School of Business ( email )

Chikkahagade Cross,
Chandapura-Anekal Road, Anekal
Bangalore, Karnataka 562106
India
9945182465 (Phone)

Mahesh Kodagi

Indusind Bank Limited - Risk Management ( email )

Mumbai - 400 013
India

Vivekanand B. Y.

Fiserv India ( email )

Noida
India

Narendra Babu

affiliation not provided to SSRN ( email )

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