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Exchange Rate Exposure and Usage of Foreign Currency Derivatives by Indian Nonfinancial Firms

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The Impact of Globalization on International Finance and Accounting

Part of the book series: Springer Proceedings in Business and Economics ((SPBE))

Abstract

This paper investigates the usage of currency derivatives and its impact on the exchange rate exposure. A sample of 387 nonfinancial Indian firms listed in the National Stock Exchange of India were studied for a period of 5 years from 2011–2012 to 2015–2016. The currency derivatives data was collected from the annual reports of the sample firms, and the stock price data was collected from Ace Equity and Centre for Monitoring Indian Economy (CMIE) database Prowess. The results of the study indicate that the currency forward contract is the most preferred hedging instrument among the sample firms. The Indian firms showed the lower interest in exchange-traded instruments especially currency futures. This is in spite of the growth in the third-generation innovative and low-cost derivative instruments. This study also provided evidence that hedging using currency derivatives decreased the firms’ foreign exchange exposure level, while the use of foreign currency borrowing was found insignificant in decreasing the firm’s level of currency exposure.

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Notes

  1. 1.

    Some of the sample firms followed calendar year, and the data for those firms were from January 2011 to December 2015.

  2. 2.

    Available at: http://sdw.ecb.europa.eu/browseSelection.do?df=true&ec=&dc=&oc=&pb=&rc=&DATASET=0&removeItem=&activeTab=&FREQ=D&node=9691301&legendRef=reference&legendNor=

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Acknowledgements

The authors gratefully acknowledges the financial support provided by Nitte Education Trust, Mangalore, India to carry out this research.

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Authors and Affiliations

  1. Justice K S Hegde Institute of Management, Nitte, Karkala Taluk, Udupi, 574110, India

    Krishna Prasad

  2. School of Management, National Institute of Technology Karnataka, Srinivas Nagar, Surathkal, Mangalore, India

    K. R. Suprabha

Authors
  1. Krishna Prasad
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  2. K. R. Suprabha
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Correspondence to Krishna Prasad .

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Editors and Affiliations

  1. Faculty of Finance and Accounting, University of Economics, Prague, Prague, Czech Republic

    David Procházka

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Prasad, K., Suprabha, K.R. (2018). Exchange Rate Exposure and Usage of Foreign Currency Derivatives by Indian Nonfinancial Firms. In: Procházka, D. (eds) The Impact of Globalization on International Finance and Accounting. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-68762-9_8

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