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RISK MANAGEMENT
IN
FOREIGN EXCHANGE
By
NAGARJUN B R
(Reg. No 03VWCM6063)
This dissertation report is submitted in partial fulfillment of the
requirements
of the MBA program of Bangalore University
Under the guidance of
PROF. MIHIR DASH
Alliance Business Academy
Alliance Business Academy
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19th cross, 7th main,
N.S.Palya, BTM 2nd Stage,
Bangalore 560076
2003 2005
DECLARATION
I Nagarjun B. R, of MBA IV SEMESTER studying in Alliance Business
Academy, Bangalore do hereby declare that this Project titled Risk
Management in Foreign Exchange has been prepared by me in the partial
fulfillment of the award of MASTER OF BUSINESS ADMINISTRATION
under Bangalore University during session 2003-05. My guide for the
training has been Prof. Mihir Dash.
I further declare that this project report has not been submitted earlier to any other
University or Institute for the award of any Degree or Diploma.
Date:
Place: Bangalore
Nagarjun B. R
(03VWCM6063)
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CERTIFICATE
I, Prof. Mihir Dash hereby certify that this dissertation report
titled Risk Management in Foreign Exchange has been successfullycarried out by Nagarjun.B.R with Registration number 03VMCM6063
under my supervision and guidance during the months of April June
2005.
Prof. Mihir Dash
Faculty
Alliance Business Academy
BangaloreDATE:
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ACKNOWLEDGEMENT
The satiation and pleasure that accompany the successful completion of task
would be incomplete without the mention of the people who have made it
possible and whose consent, guidance and encouragement served as a
guiding light for the completion of the study.
I consider my privilege to place on record my sincere gratitude to the
persons who have helped in bringing out this report. I would like to express
my sincere thanks to our honorable President, Mr. Sudhir Angur and Director
Dr. B.V. Krishnamurthy for having giving me the opportunity to do this
dissertation.
I would also like to express my gratitude to my project guide Prof. Mihir Dash
for guiding and explaining to me the procedures to be followed in carrying
out this report without whom the task would not have been completed.
I would also like to thank our Program manager, Prof. Narasimhan for givingme the support and encouragement needed for undertaking this work.
Last but not the least, I would like to thank my parents and friends for their
constant support and encouragement.
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TABLE OF CONTENTS
SL NO. CONTENTS PAGE NO.
EXECUTIVE SUMMARY
CHAPTER 1 THEORITICAL BACKGROUND TO THE STUDY 1 - 24
CHAPTER 2 DESIGN OF THE STUDY
STATEMENT OF PROBLEM
OBJECTIVES OF THE STUDY
SCOPE OF THE STUDY
RESEARCH METHODOLOGY
RESEARCH INSTRUMENTS LIMITATIONS OF THE STUDY
25 - 26
CHAPTER 3 MARKET PROFILE 27 - 34
CHAPTER 4 ANALYSIS AND INTERPRETATION
TESTING OF HYPOTHESIS
34 - 67
CHAPTER 5 FINDINGS AND SUGGESTIONS 68 - 69
CHAPTER 6 CONCLUSION 70
BIBILIOGRAPHY
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LIST OF TABLES
TABLE
NO. TITLE OF THE TABLE
PAGE
NO.
1 Receiving dollars and not hedging the position 37
2 Receiving dollars and hedging the position with a forward contract. 38
3Receiving dollars and hedging the position with an option contract.
39
4 Receiving dollars and hedging the position by shifting the risk 39
5 Receiving dollars and hedging the position by exposure netting 40
6 Receiving dollars and hedging the position by exposure netting 40
7 Receiving dollars and hedging the position by swap contract 41
8 Receiving dollars and hedging the position with the help of risk sharing 41
9 Paying dollars and not hedging the position. 42
10 Paying dollars and hedging the position with a forward contract. 42
11 Paying dollars and hedging the position with an option contract. 43
12 Paying dollars and hedging the position by shifting the risk. 43
13Paying dollars and hedging the position by exposure netting.
44
14 Paying dollars and hedging the position by exposure netting. 44
15 Paying dollars and hedging the position by a swap contract. 45
16 Paying dollars and hedging the position with the contract of risk sharing. 45
17 Receiving dollars and not hedging the position 47
18 Receiving dollars and hedging the position with a forward contract. 49
19 Receiving dollars and hedging the position with an option contract. 50
20 Receiving dollars and hedging the position by shifting the risk 51
21 Receiving dollars and hedging the position by exposure netting 52
22 Receiving dollars and hedging the position by exposure netting 53
23 Receiving dollars and hedging the position by swap contract 5424 Receiving dollars and hedging the position with the help of risk sharing 55
25 Paying dollars and not hedging the position. 56
26 Paying dollars and hedging the position with a forward contract. 57
27 Paying dollars and hedging the position with an option contract. 58
28 Paying dollars and hedging the position by shifting the risk. 59
29 Paying dollars and hedging the position by exposure netting. 60
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30 Paying dollars and hedging the position by exposure netting. 61
31 Paying dollars and hedging the position by a swap contract. 62
32 Paying dollars and hedging the position with the contract of risk sharing. 63
33 Various mean when there are outflows of currencies 65
34 Various mean when there are inflows of currencies 65
35 t-test results for outflows of foreign currencies 66
36 t-test results for outflows of foreign currencies 67
37 Ranking of the various tools 68