Challenges Posed by Foreign Exchange Exposures and Strategic Way-Out
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Foreign exchange rates determine exporting firms’ profitability, competitiveness and also give comparative advantage to a country. The fluctuating exchange rates pose unique risks and opportunities for Indian companies with global supply chains and those operating in many geographic markets. This paper addresses exchange rate exposure in terms of transaction risk, translation risk and economic risk and analyses risk management strategies of the firms through hedging and Rupee invoicing. This paper suggests rupee invoicing when the exporters has first-mover advantage and power through product differentiation as well as the stable monetary policy and low transaction costs associated with home currency and operational hedging strategies for internationally active firms.
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