[Managing Forex Trading Risk]

By

ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I, [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

Signed __________________ Date _________________

ABSTRACT

With globalization and liberalization being adopted by almost all countries, scope as well as sphere of international business has become much larger. The high volatility of exchange rates is a fact of life faced by every company engaged in international business, bringing in uncertainties in their bottom line. In recent years, variations in value of rupee have been very impulsive and unpredictable. These fluctuations have had a profound impact on domestic and foreign sales, profit levels and profit margins of MNCs operating in UK (Shapiro, 1996). Many of the companies have turned into ashes as a result of unfavorable exchange rate fluctuations. The present study portrays a thumbnail sketch of foreign exchange exposure management as practiced by various multinational companies in UK. Due to the international dependence of its economy, UK is extremely well suited as subject for this kind of study. This article is based on a questionnaire study undertaken in 2004-2008 using a sample of 200 English and foreign MNCs operating in UK. The purpose of this study is to make a comparative analysis of management of foreign exchange exposure by banking and non banking as well as foreign and English MNCs operating in UK. This study deals with various other questions such as what is their attitude towards exposure management and their policy for management of foreign exchange exposure. Whether or not there is a separate management system for management of their foreign exchange exposure? The results of the study evidence that majority of firms face all of three foreign exchange exposures; transaction exposure, translation exposure and economic exposure. More over majority of the companies under study have proper exposure management system (Belk & Edelshain, 1997: 5). There is not so significant difference between attitude of foreign and English MNCs towards development of separate management system to hedge their foreign exchange exposure. Most of the companies who are aware of foreign exchange exposure make estimation of their exposure despite their level of exposure. There is significant effect of objective of management on estimation of exposure. Most of the companies under the present study are managing only their transaction exposure. Few of them are managing both transaction as well as economic exposure. There is no significant difference between attitude of English and Foreign companies towards review of their exposure and hedging policy regularly.

TABLE OF CONTENTS

ACKNOWLEDGEMENT2

DECLARATION3

ABSTRACT4

CHAPTER 1: INTRODUCTION7

Background of the Study7

Objectives and the Purpose of Study8

Hypothesis9

Significance of the study10

Emphasis on Validity10

CHAPTER 2: LITERATURE REVIEW12

Background on How Currency Risk Is Created By International Investment19

Basic Conclusions from the Academic Literature22

The Mechanics ...