Exporter’s Perception towards Risk Factors of Foreign Exchange Operations –An Empirical Study

The experience with the exchange rates has in many ways differed from what was anticipated in 1973 when the major industrialized countries abandoned the effort to keep the values of their currencies fixed. There is a wide spread feeling that exchange rates have turned out to be more volatile than they were expected to be, than they should be and perhaps than they need to be. Exchange rate volatility creates special problem for international business activity, because it creates a special kind of risk (foreign exchange risk). When business deals are arranged for the future, they are complicated by the increased risk of exchange rate changes. Exchange rate volatility has complicated the exporting business. Exporting firms adopt Foreign Exchange Risk Management as solution to these volatile exchange rates because of their impact on firm‟s financial performance. To most firms the objective of Foreign exchange risk management is to protect funds, which a company possesses or can expect in the near future. FERM (Foreign exchange Risk Management) is carried out purposively to minimize quarter-to-quarter or year-to-year earnings fluctuations stemming from currency movements. The Currency Risk Management practices in India are evolving at a slow pace. At the Policy, Reporting and Operational levels, there is need for a greater sense of urgency in developing foreign exchange market fully and using the hedging instruments effectively. The framework developed in this research is based on a mental model of a medium-to-large manufacturing company and merchant exporter, as perceived by the researcher. Decisions and actions in the area of FERM may have impact on other segments and activities in the enterprise.