Currency Risk Management and Covid 19

Abstract

COVID 19 is a bolt from the blue, to the already ailing world economy. Lockdowns, and disruptions of global supply chains, have impacted growth prospects of economies in various countries. Reshuffling of portfolios by global investors, declining oil prices, medium term uncertainity, and “exit China†motivations have increased volatility in currency markets. Indian Rupee is relatively stable, yet there is no room for complacency. It is not appropriate to assume that central banks might protect currency volatility, and historical assumptions of currency forecasting models need to be revisited. While natural hedging, currency invoicing and risk sharing contracts could be still effective, other currency risk management approaches, like medium term, anticipatory, and selective hedging, focussing on budgeted exchange rates, revenue and cost volatility, need to be changed. Post COVID 19, firms need to focus more on short term, actual, and full hedging of currency risks, focussing on liquidity, and cashflow volatility.