CURRENCY RISK MANAGEMENT AND EXPORT PERFORMANCE OF INDIAN EXPORTERS Part A (firm-specific characteristics) 1.

NAME OF THE COMPANY/FIRM and Line of exports: Manufacturing/Trading/Services 2. YEAR OF ESTABLISHMENT: 3 NUMBER OF COUNTRIES TO WHICH PRIMARILY EXPORTED? 1. 1-3 2. 3-5 3. 5-7 4. 7-9 5. ABOVE 9 4 ANNUAL TURNOVER ( IN CRORES OF RUPEES): 5 NUMBER OF EXPLOYEES: (kindly mention the number of employees as on date) 1. UPTO 100 2. 100-200 3. 200-300 4. 300-400 5. 400-500 6. ABOVE 500 6 WHAT ARE THE VARIOUS SOURCES OF FINANCE FOR CAPITAL 1. BORROWINGS ( other than from term lending institutions and commercial banks) 2. OWNED FUNDS 3. BOTH 1 &2 4. DOMESTIC BORROWINGS ( term lending institutions and commercial banks) 5. FOREIGN BORROWINGS 6. BOTH 4 & 5 7. Mix of all listed above 7 WHAT IS THE CURRENCY IN WHICH THE REVENUES ARE DENOMINATED 1. Indian Rupees 2. U.S Dollars 3. Euros 4. All of the above 5. Others Please specify 8. WHAT IS THE MEDIUM OF SETTLING EXPENSES 1. Indian Rupees 2. Other currencies Please specify -----------3. Both, Please specify the mix -----------------PART - B FACTORS DETERMINING THE EXPORT PERFORMANCE Following are the factors that are considered to be important for determining the export performance of a firm that is into exporting. Kindly express your agreement/ disagreement to the above by ticking the column that you feel appropriate. STATEMENTS SA A N D A 1 Maintaining a centralized treasury department to monitor exchange rates, exposure etc. 2 A firm can also have a decentralized department for managing exposure and risks 3 A firm need not have a proper risk management system 4 Exposures should be monitored regularly 5 Internal techniques are considered better than derivatives at all times 6 It is wise to take the exposure totally and then device a suitable hedging strategy 7 Exposure should be always managed individually 8 An organization need not have any internal tools for forecasting exchange rates

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The exchange rate quotes given by the banks, print media etc helps a lot A firm should have a treasury department to monitor exchange rates, exposure etc Internal techniques are not as effective as derivatives Buying a forward contract is always the best Using financial derivatives is the best for minimizing risk Following a bankers advice is always helpful in derivatives Suitable adjustment in the price helps to reduce the risk to the maximum than other ways Including more countries in the export basket reduces risk to the maximum Products could be added to the existing line to reduce risk Risks need not be hedged at all instead it could be left open Using the appropriate internal techniques could minimize risk An optimum balance of both internal and external techniques helps to minimize risk A firm should always depend on simple derivatives rather than complex derivatives A firm should have an ERP with modules for exchange risk management Shifting factories to other locations help to minimize risk A very well documented risk management policy helps the firm to gain focus The practices followed should be the best practices in the industry

PART C Questions relating to risk management practices and hedging techniques adopted 1. Do you have a risk management system in place in your firm? Yes No 1. Tick the appropriate column to show your agreeability to the following statement(s) that aptly describe the risk management practices of your firm/company NO Strategies RE VO O RA N 1 Use the exchange forecasts from external sources like banks and manage risk accordingly 2 Our accounts/ finance department takes care of treasury operations 3 We have a very well documented risk management policy in place 4 5 6 7 8 9 10 NO 1 2 3 4 5 6 7 8 9 We review the system periodically and update it accordingly We have defined the authority and delegated it to the concerned people for taking decisions on risk management We have installed proper accounting and management information systems to measure and monitor foreign exchange positions, foreign exchange risk and gains and losses arising from various transactions. We have set controls for managing the foreign currency activities We have the audit and inspections conducted by independent authorities We avoid managing risks using derivatives as a policy decision We have an exclusive treasury department to monitor exposures and to effectively manage them REASONS We manage our risks well without a documented policy and system Our exposure is negligible Our company/firm is very small Installing a risk management system is very expensive It is meant only for the Multi national companies It is beyond our comprehension and understanding We are not aware of such systems Risk management systems do not contribute to the export performance of our firm We feel it is not necessary for our business house at present

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We may install a system, in future, when the company grows and requires

2.Tick the appropriate column to show your agreeability to the MOST IMPORTANT AREA THAT HAS TO BE MANAGED for successful realization of the objectives of the organization NO REASONS S A N D SD A 1 Sales 2 Profit 3 Increase in Interest obligations 4 Increase in liability 5 Decrease in assets 6 Decrease in surplus 7 Future cash flows of the company 8 High level of competition in the international markets 9 Change in the customers preferences, style 10 Brand Image, identity etc

2. WHICH OF THE FOLLOWING STATEMENTS BEST DESCRIBE YOUR HEDGING PRACTICES PARTICULARS I simply buy a forward contract from a bank I take the decisions based on the quotes given by a number of banks In our company/firm, the hedging decisions are taken by the upper levels of management after a meeting We have a separate department that takes hedging decisions We have a separate centralized department that takes hedging decisions We hedge very rarely We hedge only when the exposure is very large We do not practice hedging using derivatives We suitably price the product SA A N D SD

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PART D TO UNDERSTAND THE DERIVATIVE USAGE LEVELS 1. Of the following, what are the techniques that you are aware of? No 1 2 PARTICULARS Money market hedges Currency Options YES NO

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3 Currency Swaps 4 Currency Futures 5 Matching 6 Leading and Lagging 7 Netting 8 Pricing Policies Of the following, what are the techniques used by your firms No 1 2 PARTICULARS Money market hedges Currency Options YES NO

3 Currency Swaps 4 Currency Futures 5 Matching 6 Leading and Lagging 7 Netting 8 Pricing Policies 3. Indicate the three most important reasons for your decision not to use derivatives to manage risk No PARTICULARS SA A N D SD 1 Insufficient exposure to financial or commodity prices 2 Exposures are more effectively managed by other means 3 Difficulty in pricing and valuing derivatives 4 Disclosure norms are stringent and cumbersome 5 Accounting treatments difficult 6 Costs of establishing and maintaining a derivatives program exceed the expected benefits 7 Not applicable as we use derivatives

4. Circle the motive/ motives behind your firm hedging currency risk using derivatives
No 1 2 3 4 5 6 7 8 PARTICULARS Reduce fluctuations in income or expenses in foreign currency Reduce risk of financial distress Reduce cost of capital Exploit interest rate differentials between different currencies Reduce risk for owners Follow dominant practice in business sector Use enterprise's foreign exchange expertise Ensure that tax-reducing measures are used SA A N D SD

5. Do you train your employees on hedging and derivatives?

YES NO 6. IF NOT WHAT ARE THE REASONS No PARTICULARS 1 Cost of the program 2 Unaware of such programs 3 4 5

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Lack of such programs Employee attrition lack of effectiveness of such programs 7. WHOM DO YOU CONSIDER THE BEST, OF THE FOLLOWING TO OFFER SUCH PROGRAMS No PARTICULARS SA A N D SD 1 Government 2 Banks 3 4 5 Associations such as CII, ASSOCHAM From within the company Collective effort of all of the above