Hedging- An Effective Tool for Risk Management

Due to the globalization and liberal foreign investment rules and regulations many Indian companies have started
expanding their business in many countries. This leads to higher recognition as well as increasing revenue. However there are
some aspects which require very meticulous consideration while doing the international trade. The major risk associated with
international trade is interest rate risk as well foreign currency risk. There are different methods adopted by companies to
minimize such risk by using different methods. One of the highly preferred and widely popular risk minimizing techniques is
the use of derivative instruments like forwards, futures and option contract to hedge currency fluctuation risk. This paper is
based on study of selected Indian companies, on how to hedge the foreign exchange risk more effectively through use of
derivatives. The researchers will be studying how forwards are used by selected Indian companies for minimizing currency
exchange risk in efficient manner.