A study on currency correlation and variability as a hedging tool: An analytical study of their relationship

Type :

Research papers

Pages :

47 pages

Format :

.doc

Published date :

05/21/2009

Category :

Economics & finance

Sub category :

Finance

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Summary :

Introduction
Background of the study
Statemant of the problem
Needs and importance of the study
Objective of the research
Methodoilogy
1. Types of currency exposure
2. Management of foreign exchange exposure
3. World monetary system
4. Factors determining the exchange rates
Research design
1. Type of research
2. Sampling techinique
3. Sample size
4. Sample description
5. Actual data collection
6. Software used for data anaysis
Presentation of data
Conclusion
Finding and suggestion
Scope for further research
Bibliography

Abstract

Organizations are becoming increasingly more globalized. currency transactions and risks there upon influence an organization portfolio. Firms are finding it necessary to pay special attention to foreign exchange exposure and accordingly design and implement suitable hedging strategies. The Foreign Exchange management decisions are affected by the level of risk that a given currency environment creates. MNCs need greater sophistication in managing currencies that revalue quite often. Two mechanisms, which are useful and generally used by MNCs in covering their transaction exposure, are prediction of currency volatilities over time and finding out correlation between currencies in which they are dealing. The present focuses on these mechanisms for hedging transaction exposure using simple correlation and covariance analysis. Here in this dissertation, it presents the reasoning and empirical evidence behind currency volatility and correlation over the period of time.

Basically this chapter deals with the background of the study or genesis of the problem to be studies and the statement of the problem to be analyzed in this dissertation. Similarly, it also covers the need and importance of this study and the main objective.

The globalization of financial markets brought about by recent technological changes, financial market liberalization and the removal of capital controls have impressed upon all MNC with international cash flows the necessity to manage foreign exchange exposure that a floating exchange system creates. Today multinational firms are trying to develop techniques and strategies for effective foreign exchange exposure management. The foreign exchange strategy adopted is critical to a MNC in the present day environment due to the high variability in the exchange rates and need to evolve with the changing structure of the company.