Current Issues Faced by IT Companies in Managing Foreign Exchange Risk

By

[Name of the Subject]

Acknowledgement

I am thankful to my research team and to my lecturer who has provided me significant help and support for successfully completing my dissertation.

Declaration

I, hereby declare that the work of this dissertation is

Abstract

With increased globalization, it is increasingly becoming essential for companies to overcome the challenges and issues faced by companies for managing foreign exchange risk. It is essential for companies to ensure that they are able to manage international risk effectively. Companies employ various hedging strategies to mitigate risk that is associated with expanding their business activities in the international market. Companies are willing to enter in the global market with the intention to achieve their organizational objectives of earning greater revenues and maximize their shareholders values. Although globalization has provided organizations with various opportunities, there are also certain disadvantages of investing in the international market. Organizations are faced with currency risk and exchange rate risk. Therefore, it is necessary for the companies to make certain that they manage these risks effectively and efficiently through successfully adopting appropriate strategies. However, while managing these risks, companies are faced with different issues and problems which are essential to overcome o successfully achieve organizational objectives and goals.Table of Contents

CHAPTER 1: INTRODUCTION4

1.1 Aims4

1.2 Objectives4

1.3 Research Question4

1.4 Background4

1.5 Industry Background5

1.6 Theoretical Framework6

1.6.1 Defining Foreign Exchange Risk6

1.6.2 Sources of Foreign Exchange Risk6

1.6.3 Foreign Exchange Risk Management7

CHAPTER 2: LITERATURE REVIEW8

2.1 Impact of Foreign Exchange Risk on Businesses8

2.1.1 Fall in Domestic Exchange Rate8

2.1.2 Increase in Domestic Exchange Rate9

2.2 Measuring Foreign Exchange Risk9

2.3 Methods for Foreign Exchange Risk Management10

2.3.1 Forward Exchange contract:10

2.3.2 Foreign Currency Options10

2.4 Why Organizations Refrain from Managing Foreign Exchange Risk10

2.5 Types of Foreign Exchange Risk11

2.5.1 Transaction Exposure11

2.5.2 Translation Exposure12

2.5.3 Economic Exposure12

2.6 Issues in Foreign Exchange Management12

CHAPTER 3: METHODOLOGY14

3.1 Data Collection14

3.1.1 Primary Research Method14

3.1.2 Secondary Research Methodology14

3.2 Qualitative v/s Quantitative Data14

CHAPTER 4: FINDINGS AND CONCLUSION16

References17

CHAPTER 1: INTRODUCTION

1.1 Aims

The aim of the research is to identify the issues and challenges that are faced by IT companies in managing foreign exchange risk.

1.2 Objectives

To determine the foreign exchange risk faced by IT companies

To evaluate the impact of unanticipated changes in the exchange rate between two countries

To examine the importance of foreign exchange risk management for organizations

To analyze the issues faced by IT companies in managing foreign exchange risk

To formulate and develop strategies that are essential to overcome issues of foreign exchange risk management and minimize the uncertainty of operating in international market

1.3 Research Question

The researches will emphasize on determining the current issues faced by IT companies in managing foreign exchange risk and what are the effective strategies to overcome the issues of foreign exchange risk management.

1.4 Background

With increased globalization, companies are looking forward to grow and expand their operations in the international market. However, these corporations often fail to determine the impact of foreign exchange risk while entering into global market (Ajami, et. Al 2006, 110-114). International buyers are increasingly demanding to pay in their local currencies and as a ...