Foreign Exchange Practices and Hedging Tools Used by the Software Industry

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“FOREIGN EXCHANGE PRACTICES AND HEDGING
TOOLS USED BY THE SOFTWARE INDUSTRY”

This report is submitted as a part of the requirements of the MBA Program of Bangalore University. This research has been undertaken by

RAJEEV SAMUEL JAYAMANOHAR

Reg. No: 04VWCM6068

With the guidance and support of

Prof. RATHNAKAR ACHARYA

Faculty, ABA

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ALLIANCE BUSINESS ACADEMY
BANGALORE – 560 076
Batch: 2004-2006

ACKNOWLEDGEMENT

I would like to express my heartfelt gratitude to our President Prof. Sudhir Angur and Director Dr. B.V.Krishnamurthy for having granted me an opportunity to conduct this study.

My sincere thanks to Prof. Ratnakar Acharya for guiding me through the project.

My special thanks to the respondents of the study who are been instrumental in the successful completion of this work are Finance Managers, Forex Managers of various software companies at Bangalore City, whom I approached for information and were kind enough to spend time with me irrespective of their busy schedule.

Finally I thank my friends who have been with me at every stage of the project in the form of constant support and encouragement without whom, completing this research work would have remained an unfulfilled dream.

RAJEEV SAMUEL

CERTIFICATE BY THE GUIDE

This is to certify that the dessertation entitled “Foreign Exchange Practices And Hedging Tools Used By Software Industry” by Rajeev Samuel bearing Reg.No 04VWCM6068 has been prepared under my guidance and supervision. The work has been satisfactory and is recommended for consideration towards partial fulfillment of requirement for the M.B.A degree of Bangalore University.

Date:
Place: Bangalore Signature

(Prof. Ratnakar Acharya)

DECLARATION

This is to state that the dessertation titled “Foreign Exchange Practices And Hedging Tools By Software Industry” is based on the original work carried out by me under the supervision of Prof. Ratnakar Acharya towards the partial fulfillment of requirements for the degree of Master of Business Administration of Bangalore University during the IV semester. This has not been submitted in part or full towards any other degree or diploma.

Register No: 04VWCM6068
Date:
Place: Bangalore.
Signature

(Rajeev Samuel)

EXECUTIVE SUMMARY

The subject title for the study was “ Foreign Exchange Practices and Hedging Tools used by Software Industry”

Like any other business organisation, software compnies too face risks inherent to the company and the industry in which they exist. In what way companies face foreign exchange risks? What can companies do when they face Forex risk? Which are the best hedging tools to adopt? On the same lines we can come up with so many other questions for which managers have to take a decision. Since , no formal study has been done to understand all this, the author took the opportunity to conduct this study.

The methodology adopted for the study is based on the simplest research methods – descriptive research, which is a fact –finding investigation with adequate interpretation. It is focused and aimed on Foreign Exchange practices prevailing in the Indian software industry. The research methodology used for the study was the survey method. Around 10 companies from Bangalore were taken for the survey. An interview with the finance managers of these companies was taken to collect the primary data.

Foreign exchange transactions include a substantial amount of risk due to fluctuations in the exchange rates. Hence, corporates are continuously striving to minimize this risk exposure by the use of various hedging tools like Forward contracts, Options, Swaps, Netting etc. Foreign exchange risk may also be linked to other types of market risks, such as interest rate risk. Interest rates and exchange...
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