Foreign exchange risk is one of the major risks faced by most of the corporates. There is always an element of risk inherent in their transactions, as the exposure to the exchange rate volatility in the market can have significant impact on their returns. The RBI and some of the major banks are trying their best to generate awareness among the market participants. It has been found that most corporates still do not make use of the various risk management tools available to them. How can the clients reduce their foreign exchange risks?

At present, barring a handful of big corporate treasuries, most of the clients are not giving due importance to their fx exposure and are not aware of the risk associated with it, if not managed properly. Most of the clients are used to receiving/paying their foreiegn currency in US Dollar even though more than 40% of our trades are not to the United States. In addition, they use cash market for conversion of their foreign exchange requirement. These segments of the clients are not making use of forward rate agreements, cross currency options, and swaps.

Reserve Bank of India, and few of the foreign banks as well as private sector banks are trying to create an awareness and they would like clients to make use of these tools to enhance their profit as well as hedge their risk. However, public sector banks have to gear up their marketing and risk management expertise and start using and marketing these products to their clients, as these entities still constitute more than 60% of the market. This will not only help the clients, but will improve the liquidity of the products as well.

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