Perspectives on Business Management, Economics & Information Technology (PBMEIT) Now also covers research on Psychology

PBME Volume I ISBN: 978-81-946245-3-0

COMPARATIVE ANALYSIS OF SMES HEDGING AND NOT HEDGING THE EXCHANGE RATE FLUCTUATIONS

Author(s): DR. ANAND PATIL & PROF.(DR). V. K SAWANT

Abstract

Organizational performance is mostly affected by the environment in which it operates. Favorable uncertainties boost the performance of the organization, whereas unfavorable ones will hinder the performance of the organization. Exchange rate fluctuations have been affecting businesses in India that engage in import and export of materials. Uncertainty in the currency rate can lead to around 30% erosion of profit from an organization. Larger companies hedge their exposure in order to manage the risks of currency fluctuations. SMEs also do the same.

SMEs engaged in the business of import and export have to deal with currency risk exposure constantly. They can manage this by entering into derivates contracts – something that larger players frequently do. There are many impacts of exchange rate fluctuations like stagnant growth of industries, loss of market share, impact on profit margin, merchandise trade loss, reduction in capital flows.

In light of the above reasons, the present study is undertaken to compare the performance of SMEs hedging and not hedging exchange rate fluctuations. The research focuses on the effect of exchange rate hedging on the volatility of revenues and profits after tax of SMEs the operations of small and medium enterprises in India that are listed on the NSE Emerge, a portal explicitly catering the SMEs.

Keywords: hedging, exchange rate fluctuations, small enterprises

JEL Classification: C11, L33, H2, H11, D81

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