Measurement and Management of Transaction Exposure in Indian Companies

Abstract

The value of a firm's assets, liabilities and operating income vary, continually in response to changes in a myriad of economic and financial variables such as exchange rates, interest rates, in.fl.at ion rates etc. uncertainties related to its operating business such as interrupiions in raw materials supplies, labour troubles, success or failure of a new product or technology and so forth obviously have an impact on the.firm's performance. In India, specific.foreign currency transactions are permilted. Companies operating in India face transaction exposure only when they indulge in export or import transactions. Sometimes they also indulge in the activities of borrowing or lending.fimds in foreign currency. The present paper is designed to study the measurement and management techniques of transaction exposure used by the selected Indian companies. To achieve this objective, data has been collected from 50 Indian companies through questionnaire. Data has been analysed by using statistical tools such as percentage, mean score and ANO VA. The results show that most of the firms consider transaction exposure as an important risk and they are well aware about the various techniques of measurement of transaction exposure. The.financial experts expressed that by using various derivative instruments likeforward,future, swap, options and through currency diversifications transaction exposure can be managed very efficiently.