This study deals with
the impact of currency fluctuations on cash flows of IT service providers (who
would be receiving foreign currencies), and explores various strategies for managing
transaction exposure from this viewpoint. The study evaluates three foreign
exchange risk management strategies, viz. forward currency contacts, currency
options, and cross-currency hedging, to find out which of the strategies is
appropriate in particular situations. The results of the study suggest that the
forward currency hedging strategy yielded the highest mean cash flows and the
highest mean percentage gain amongst the forex risk management strategies
considered. Further, in terms of project type, the forex risk management
strategies investigated in the study seem to be more suitable for fixed price
projects (FPP) than for time and materials (T&M) projects, and in terms of
project category, the forex risk management strategies investigated in the
study seem to be more suitable for application support (AS) projects than
application development (AD) projects..
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