Current Issues Faced by IT Companies in Managing Foreign Exchange Risk

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[Name of the Subject]

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 result of exchange rate fluctuations the international market has become uncertain (CPA, 2009). Investors and multinational businesses that are engaged in trading commodities in the global market are faced with an exchange rate risk, which is likely to result in certain financial consequences if companies fail to manage it appropriately. It is important for companies to understand that currency movements have a major impact on international portfolios; therefore, organizations should ensure that they are able to manage foreign exchange risk effectively (Collier, 2009, 41-43).

Many studies have been conducted to determine the impact of foreign exchange risk on the performance of the companies. Moreover, researchers have failed to examine the current issues faced by companies while managing foreign exchange risk (CPA, 2009). Therefore, the researcher will focus on analyzing the challenges faced by IT companies to overcome the unexpected movements in exchange rates, while operating in the international market. Foreign exchange risk can be defined as a potential gain or loss as a result of changes in exchange rate. For instance, if a person in UK owns a share in the US Company the person is likely to lose money if the value of dollar ...