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Dealing with currency volatility

Posted on 19 September 2013

In volatile times, such as in the last one year or more, currency risk looms large in all foreign exchange transactions. One way to minimise exposure to exchange rate fluctuations and its potential impact on cash flow and balance-sheets is through hedging. When exposures are large and short-term — as they were for East Asian firms during the 1997 currency crisis — illiquidity in terms of cash flows turns into insolvency.
In India too, currency volatility has led to adverse impacts on firms and banks that have lent to them. But short-term foreign currency debts have generally been smaller, since external commercial borrowings were permitted only for long-term debt………………………………………..Full Article: Source


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