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Tuesday, December 11, 2007

Dating exchange rate regimes; the currency exposure of firms

I wrote an article in Business Standard today titled How frail are the firms? about changing currency volatility of a pegged exchange rate and its implications for the currency risk management of Indian firms.
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1 comment:

  1. AnonymousTuesday, 11 December 2007 at 14:08:00 GMT+5:30

    how have you isolated the general PE expansion of the market after 2004? i.e. how do you conclude that the stock price changes were due to currency exposure and not due to PE expansion, of both the market and the firm

    Also, the adverse impact of currency fluctuations is on SME. They do not have the access or means to use the sophisticated hedging tools. Even if what you say is correct, it doesn't apply to SME. In India's case, it means that more people are adversely affected by currency fluctuations.

    Also, I feel that you have to account for the dynamic impacts of currency fluctuations. With large scale job losses, as Goldman Sachs predicts, the popular support for reform may erode. It is very easy for the management to blame $ depreciation for their woes rather than their own inefficiency. Be that as it may, the erosion of popular support for reform, may do more harm than good. If by generating employment in export sector, government build up popular support for, say, labour or pension reform, the costs, both fiscal and economic, of keeping Rupee undervalued may be worth.

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