Managing Foreign Exchange Risk

2018 ◽  
pp. 172-191
Keyword(s):  
Standard Deviation ◽  
Foreign Exchange ◽  
Efficient Frontier ◽  
Interest Rate Risk ◽  
Foreign Exchange Risk ◽  
Hedging Strategies ◽  
Optimal Hedging ◽  
Exchange Risk ◽  
The Interest Rate ◽  
Exchange Options

This chapter discusses the method's application to foreign exchange risk management by elaborating how to use foreign exchange options for hedging the interest rate risk. The problem is to determine how many European Put options to purchase for optimal hedging of the foreign exchange risk: 1) Stochastic Optimisation is used to construct Efficient Frontier of optimal hedging strategies of the foreign exchange risk with minimal Standard Deviation; 2) Monte Carlo simulation is utilised to stochastically calculate and measure the Total Amount Hedged (US $), Variance, Standard Deviation and VAR of Efficient Frontier optimal hedging strategies; 3) Six Sigma process capability metrics are also stochastically calculated against desired specified target limits for Total Amount Hedged and associated VAR of Efficient Frontier optimal hedging strategies; 4) Simulation results are analysed and the optimal hedging strategy is selected based on the criteria of minimal VAR.

Does Brownian Risk Matter in Debt or Equity Issuance and Repurchase Decision in Indian Non-Financial Companies?

2017 ◽  
Vol 18 (1) ◽  
pp. 49-69
Author(s):  
Pankaj Sinha ◽  
Shalini Agnihotri
Keyword(s):  
Interest Rate ◽  
Foreign Exchange ◽  
Interest Rate Risk ◽  
Equity Issuance ◽  
Foreign Exchange Risk ◽  
Retirement Decision ◽  
Specific Risk ◽  
Rate Risk ◽  
Debt Issuance ◽  
Exchange Risk

External commercial borrowings (ECBs) of Indian non-financial firms have grown by 107 % in past few years. Looking at the high reliance of firms on external debt, this paper investigates the effect of foreign exchange, interest rate and firm specific risk on the debt issuance and retirement decision. It also investigates the factors affecting equity issuance and retirement decision of the firms. Foreign exchange risk and interest rate risk is estimated using stochastic volatility and GARCH (1,1) methods. Firm specific risk is calculated using Black-Scholes Merton model for company valuation. The results highlight that interest rate risk negatively affects the debt issuance and positively affects debt retirement decision of the firms. However, the foreign exchange risk does not affect debt issuance and retirement decision. Firm-specific risk negatively affects propensity of debt issuance of firms but plays no role in debt retirement. Foreign exchange risk, firm-specific risk, and profitability negatively affect propensity of issuance of debt to issuance of equity. This result supports the view that risky firms are more likely to finance their capital needs via new equity issues rather than by new debt issues to avoid the high-risk premium and to limit the likelihood of bankruptcy.

FINANCIAL RISKS OF MICROFINANCIAL ORGANIZATIONS (FOREIGN EXPERIENCE)

2021 ◽  
Vol 2 (11) ◽  
pp. 48-62
Author(s):  
Viktor V. Erokhin ◽  
Keyword(s):  
Interest Rate ◽  
Foreign Exchange ◽  
Legal Status ◽  
Interest Rate Risk ◽  
Risk Exposure ◽  
Financial Risks ◽  
Microfinance Institutions ◽  
Foreign Exchange Risk ◽  
High Interest Rate ◽  
Exchange Risk

New ideas make it clear that attempts by the international community to support microfinance institutions and provide them with borrowers do not always take into account the most serious financial risks of lenders. This study examines the exposure of microfinance institutions to liquidity, interest rate and foreign exchange (FX) risks. Analyzing data from financial statements of microfinance institutions, it can be concluded that the microfinance sector faces minimal liquidity risk, high interest rate risk and lower than commonly as-sumed foreign exchange risk. Linking risk exposure to institutional characteristics, the data show that legal status and regional affiliation correlate with risk exposure, but regulatory quality does not. The results indicate that the lender community may not expect great benefits from expanding the array of ongoing measures from credit market regulators to mitigate liquidity or foreign exchange risk.

scholarly journals Effect of Foreign Exchange Risk Hedging Techniques on Financial Performance of Listed Firms in Kenya

2018 ◽  
Vol 8 (3) ◽  
pp. 156 ◽  
Author(s):  
Monica Wanjiru Muiru ◽  
Sifunjo E. Kisaka ◽  
Fredrick Kalui
Keyword(s):  
Financial Performance ◽  
Foreign Exchange ◽  
Cash Flows ◽  
Least Square ◽  
Currency Hedging ◽  
Foreign Exchange Risk ◽  
Listed Firms ◽  
Risk Hedging ◽  
Hedging Strategies ◽  
Exchange Risk

The adoption of floating foreign exchange rate regime in the 1990s and international trade have led to increased exposure of Kenyan firms to foreign exchange risk. Foreign exchange risk can affect a firm’s expected cash flows, and by extension, its financial performance. This paper examines the effects of foreign exchange risk hedging techniques on the financial performance of publicly listed firms in Kenya. The target population constituted all the 54 firms that were continuously listed on the Nairobi Securities Exchange during the study period, from 2011 to 2016. The study used panel data research design. Secondary data was obtained from financial statements of the listed firms. The data was coded and analysed using descriptive and inferential statistics—correlation and regression—with the aid of STATA software. The feasible generalised least square model was used to test the hypotheses. The results show currency hedging has a positive effect on financial performance. This implies that when hedging strategies and hedging tools are implemented appropriately, they help firms achieve their financial objectives, increasing financial performance, hence creating value for shareholders.

scholarly journals PENGARUH RISIKO INFLASI, RISIKO SUKU BUNGA, RISIKO VALUTA ASING TERHADAP RETURN SAHAM

SIMAK ◽  
2021 ◽  
Vol 19 (01) ◽  
pp. 52-68
Author(s):  
Olivia Luthfiah Mufida ◽  
Gusganda Suria Manda
Keyword(s):  
Interest Rate ◽  
Stock Returns ◽  
Foreign Exchange ◽  
Interest Rate Risk ◽  
Negative Influence ◽  
Foreign Exchange Risk ◽  
Inflation Risk ◽  
Rate Risk ◽  
Exchange Risk ◽  
The Relationship

This research was conducted to show the importance of company managers in managing stock returns during inflation, increases in interest rates, and increases in foreign exchange rates. The purpose of this study is to analyze the effect of inflation risk, interest rate risk, and foreign exchange risk on stock returns, 2012-2019 study period. The method in this research is using multiple linear regression analysis. Techniques in conducting this research using quantitative descriptive analysis and obtained 8 companies as research samples. The results of this study indicate that inflation risk has an insignificant effect and the relationship is partially positive influence on stock returns, interest rate risk has no significant effect and partially negative influence on stock returns, foreign exchange risk has a significant effect and the relationship is negative influence significantly partial to stock returns. This research is inseparable from the limitations of the researcher. For investors and potential investors who want to invest, it is better if they pay more attention to the company's financial condition so that investors can find out whether it is feasible or not to invest in the chosen company so that investors do not experience losses.

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