Project on

FOREIGN EXCHANGE RISK AND ITS TYPES

In partial fulfillment of requirement for the
Award of Degree of M.Com
Subject:
ECONOMICS
Submitted By:
Miss. VANDANA DHAMEJA
Roll No. 37
M.Com. Part I, Semester ll
Under the Guidance of:
Prof. Mr.SHYAM LILANI
SMT. CHANDIBAI HIMATHMAL MANSUKHANI COLLEGE

ULHASNAGAR 421003
UNIVERSITY OF MUMBAI
2015 2016

Department of Commerce

Certificate
Thisistocertifythat,Ms.VANDANAD.DHAMEJAofM.Com.I,Sem.Il(RollNo.37),
hassuccessfullycompletedtheprojecttitledForeignExchangeRiskanditsTypesundermy
guidancefortheAcademicYear201516.Theinformationsubmittedistrueandoriginalasper
myknowledge.

Prof.ShyamLilani
(ProjectGuide)

Prof.GopiShamnani Dr.ManjuLalwaniPathak
(Coordinator,M.ComCourse)
(I/CPrincipal)

ExternalExaminer

DECLARATION
I, Ms. VANDANA D. HAMEJA student of SMT. CHANDIBAI HIMATMAL
MANSUKHANI COLLEGE, ULHASNAGAR studying in M.Com Part I,
(Semester II); I hereby declare that I have completed this project on
Foreign Exchange Risk And Its Types for the subject Economics of
Global Trade and Finance in the academic year 2015-16.The information
submitted is true and original to the best of my knowledge

________________
VANDANA DHAMEJA

ACKNOWLEGEMENT
To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project
I take this opportunity to thank the University of Mumbai forgiving me chance to
do this project.
I would like thank my Principal, Dr. Manju Lalwani Pathak for providing the
necessary facilities required for completion of this project.
I would also like to express my sincere gratitude towards my project guide Prof.
Mr. Shyam Lilani whose guidance and care made the project successful.
I would like to thank my college library, for having provided various reference
books and magazines related to my project.
Last but not the least, I would like to thank almighty God, my parents, and my
friends who helped me gather these data and have sat with me for hours
discussing about the project.

Objective of the study

OBJECTIVES
This project attempts to study the intricacies of the foreign exchange market.
To get a better idea and the comprehensive details of foreign exchange risk
management and to study the organization on how they manage the foreign
exchange risk.
To know about the various concepts and technicalities in foreign exchange.
To measure the awareness level for managing foreign exchange.
To get the knowledge about the hedging tools used in foreign exchange.

Methodology
DATA COLLECTION
Data collection technique for this research report is primary As well as secondary
data collection. The data is being collected from books, newspapers, other
publications and internet.

DATA ANALYSIS
Primary data has been analyzed by the percentage method which is
comprehensively studied for having an integrated evaluation. Secondary data
are analyzed by brainstorming.
LIMITATIONS OF THE STUDY
Time constraint.
Resource constraint.

Index
TOPIC

PAG
E
NO

1
2
3
4
5
6
7

Introduction
Need for Foreign Exchange
Participants in Foreign Exchange Market
Functions of Foreign Exchange Market
Exchange Rate System
Factors Affecting Exchange Rate
Methods of Quoting rate

1
2
3
5
7
10
13

Hedging Tools

15

31

10

Need for foreign exchange contract

Risk management from Importers And
Exporters point of view

11

Risk management process

33

12

Types of Risk

35

13

Types of Exposures

38

14
15

Conclusion
Bibliography

41
42

32

EXECUTIVE SUMMARY
The rapid industrialization, advancement in technology and communication
facilities, the availability of rapid means of transportation has all contributed
towards the globalization of business across the frontiers of countries. There have
been new innovations in the products developments. The government of India has
also opened Indian economy. Various fiscal, trade and industrial policy decisions
have been taken and new avenues provided to foreign investors like FIIs and
NRIs etc. for investment especially infra-structural sectors like power, and
telecommunications etc.
This projects attempts to study the intricacies of the Foreign Exchange Market and
to measure awareness level among the importers and exporters. The main purpose
of this study is to give a better idea and the comprehensive details of foreign
exchange risk management.
The project starts with the various concept and system used in the foreign
exchange market in the world. It also highlights about the exchange rate system
used in various countries till date. The project then highlights the various hedging
tools used by various banks and individuals to hedge their risk. The major hedging
tools included are forward, options, swaps and futures.
Lastly the project highlights the risk management with particular emphasis of the
risk managed by various organizations and the tool used by it.