Download 1 ANNEX A QUESTIONNAIRE FOREIGN EXCHANGE RISK: AN

ANNEX A
QUESTIONNAIRE
FOREIGN EXCHANGE RISK: AN EMPIRICAL STUDY OF SOFTWARE COMPANIES
This questionnaire schedule is a major part of my Ph.D study and the objective of this questionnaire
schedule is to secure the necessary and relevant first-hand information about the Foreign Exchange Risk
Management Practices of Selected Software Companies that has registered office in Hyderabad.
The questions pertain to (i) the sources and size of firm’s foreign exchange risk (ii) the objectives and
policy related issues of firm’s foreign exchange risk management, and (iii) the techniques used to manage
firm’s foreign exchange risk.
Therefore, your responses in this regard help a lot to undertake the study smoothly. The researcher thus
appreciates in advance for your cooperation and for spending your valuable time in responding to these
questions.
In all the cases the anonymity of the person responding to this questionnaire will be carefully protected. I
assure you that any academic publication will contain only aggregate data.
Please tick the appropriate answer in the box provided. (You can tick more than one answer).
Section1. Firm Characteristics
1. What is your firm?
1. A Parent Company of other foreign subsidiaries
2. A Subsidiary of other foreign company
3. Independent company
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2. Is your firm mainly?
1. Foreign Owned
2. Indian Owned
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3. What is the usual value of Average Annual Sales Revenues of your firm?
1. Less than Rs.100 Million
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2. Greater than Rs. 100 Million – Rs. 500 Million
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3. Greater than Rs. 500 Million – Rs. 1000 Million
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4. Greater than Rs. 1000 Million – Rs. 2000 Million
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5. Greater than Rs. 2000 Million
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4. What proportion of your firm’s total sales or revenues comes from overseas (foreign sales to total
sales)?
1. Less than 10%
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2. Greater than 10% - 25%
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3. Greater than 25% - 50%
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4. Greater than 50% - 75%
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5. Greater than 75%
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5. What proportion of your firm’s total purchases or sales expenses comes from overseas (foreign sales
expenses to total expenses)?
1. None
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2. Less than 10%
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3. Greater than 10% - 25%
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4. Greater than 25% - 50%
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5. Greater than 50%
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Section2. Identification of Foreign Exchange Exposure
If your firm is a subsidiary or it owns overseas subsidiaries, financial statements must often be translated
into the home currency of the parent company. This translation may lead to a foreign exchange exposure
called translation exposure. If this applies to you then
6. How often does your firm manage translation exposure?
1. All the times
2. Sometimes
3. Never
4. Not applicable
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7. What are the primary reasons in managing your firm’s translation exposure?
1. Preparation of consolidated financial statements
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2. Accounting and tax regulations
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3. Other purposes (please specify)____________________________.
Foreign exchange exposure that arises from the normal course of business is called transaction exposure
8. How often does your firm manage transaction exposure?
1. All the times
2. Sometimes
3. Never
4. Not applicable
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9. What are the primary sources of your firm’s transaction exposure?
1. Foreign Sales or purchases
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2. Foreign borrowing or lending
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3. Contracted sales and/or purchases, but not yet booked
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4. Other (Please specify)___________________________________.
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10. Which of the following methods do you use to forecast your firm’s likely future foreign exchange
exposures?
1. Forecast using the contracts
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2. Forecast using Orders
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3. Cash forecast by currency
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4. Balance sheet/Income forecast
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5. Informal method
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6. Other, (Please specify)_________________________________________.
Adverse exchange rate movements may cause changes in future operating cash flows (decline in sales
volume, increase in input costs, or decrease in competitive position) known as economic exposure
11. How often does your firm manage economic exposure?
1. All the times
2. Sometimes
3. Never
4. Not Applicable
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12. What are the major types of exposure identified by your firm?
1. Translation
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2. Transaction
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3. Economic exposure
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4. Other (Please specify)___________________________________.
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Section3. Foreign Exchange Risk Management Policy
13. Which of the following statements best represents your firm’s policy on translation exposure?
1. Leave translation exposure uncovered
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2. Cover all translation exposures
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3. Take a view on foreign exchange rates and cover or leave translation
exposure uncovered, depending on view
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4. No Particular Policy
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14. Which of the following statements best represents your firm’s policy on transaction exposure?
1. Leave transaction exposure uncovered
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2. Cover all transaction exposures
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3. Take a view on foreign exchange rates and cover or leave transaction
exposure uncovered, depending on view
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4. No Particular Policy
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15. Which of the following statements best represents your firm’s policy on economic exposure?
1. Leave economic exposure uncovered
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2. Cover all economic exposures
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3. Take a view on foreign exchange rates and cover or leave economic
exposure uncovered, depending on view
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4. No Particular Policy
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16. What percentage of your firm’s translation exposure is covered?
1. Nil
2. Up to 25%
3. Greater than 25% - 50%
4. Greater than 50% - 75%
5. Greater than 75%
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17. What percentage of your firm’s transaction exposure is usually covered?
1. Nil
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2. Up to 25%
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3. Greater than 25% - 50%
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4. Greater than 50% - 75%
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5. Greater than 75%
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18. What percentage of your firm’s economic exposure is covered?
1. Nil
2. Up to 25%
3. Greater than 25% - 50%
4. Greater than 50% - 75%
5. Greater than 75%
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Identify factors typically driving your firm’s Foreign Exchange Exposure Management?
Volatility of client’s domestic currency
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Pressure from investors
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Accounting regulations
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Other factors (Please specify)__________________________________.
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20. What is the major objective of your firm’s Foreign Exchange Exposure Management?
1. Minimize foreign exchange losses
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2. Avoid Surprises
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3. Reduce quarter-on-quarter earnings fluctuations
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4. Increasing the market value of the firm
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5. Reduce bankruptcy and financial distress costs
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6. Other (Please specify)____________________________________.
21. Which of the following statements best represents your firm’s delegation of authority on foreign
currency borrowing or lending?
1. In its own name
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2. Under general guidelines from Head Office
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3. Under specific direction from Head Office
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4. Only Head Office can borrow or lend
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22. Which of the following statements best represents your firm’s authority to enter into foreign
exchange transactions?
1. In its own name
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2. Under general guidelines from Head Office
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3. Under specific directions from Head Office
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4. Only Head Office can transact foreign exchange business
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23. Which of the following statements best represents your firm’s authority to hedge foreign
exchange exposure?
1. In its own name
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2. Under general guidelines from Head Office
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3. Under specific directions from Head Office
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4. Only Head Office can transact foreign exchange business
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24. How frequently do you revise your firm’s foreign exchange risk management policy?
1. Monthly
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2. Quarterly
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3. Annually
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4. Other(Please specify)________________________________________.
25. What is the primary source of your firm’s foreign exchange rate forecast?
1. No forecast
2. Firm’s forecast
3. Banks
4. Other financial services
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Section4. Techniques in Foreign Exchange Risk Management
26. Which of the following instruments do you use to hedge your firm’s foreign exchange exposures?
1. Netting (Offsetting debts against claims)
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2. Multi-currency billing systems and price adjustment
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3. Leading and Lagging
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4. Factoring
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5. Centralized settlements
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6. Re-invoicing
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7. Others (Please specify) __________________________________.
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27. What factors influence your choice of using internal hedging techniques?
1. Information technology
2. The availability of sufficient skill
3. Regulations
4. Costs
5. Others (Please specify) __________________________________.
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28. Which of the following financial instruments do you use to hedge your firm’s foreign
exchange exposure?
1. Spot
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2. Forward Contracts
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3. Foreign Currency Swaps
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4. Foreign Currency Futures Contracts
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5. Foreign Currency Options
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6. Others (Please Specify) _________________________________.
29. What factors influence your choice of using external hedging techniques?
1. Cost of Cover
2. Availability of skill
3. Accounting Regulations
4. Measuring the risk of derivatives
5. Others (Please specify) _________________________________.
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Thank You Very Much!
Nagaraj Peddapalli,
Research Scholar,
OUCC&BM, Osmania University.
Mobile:+919908160606.
E-mail:[email protected].
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ANNEX B
Summary Sheet
of
Test of Independence between Firms’ Foreign Exchange Risk Management Practice Variables
and
Firm Characteristic Variables
Firms’ Characteristic Variables
Type of the
Ownership
Firm
Status
χ2
χ2
(df, p-value)
(df, p-value)
42.071***
Firm Size
DFI
χ2
χ2
(df, p-value)
(df, p-value)
13.826***
4.471
21.399***
(6, .000)
(3, .003)
(3, .215)
(6, .002)
35.110***
12.214***
4.479
13.117**
(6, .000)
(3, .007)
(3, .214)
(6, .041)
28.386***
24.454***
1.009
2.905
(4, .000)
(2, .000)
(2, .604)
(4, .574)
27.013***
26.719***
2.254
1.462
(2, .000)
(1, .000)
(1, .133)
(2, .481)
Forecast of Future Foreign Exchange
11.265**
10.269***
4.661
8.683
Exposure
(4, .024)
(2, .006)
(2, .097)
(4, .070)
32.085***
31.554***
1.009
0.010
(2, .000)
(1, .000)
(1 .315)
(2, .995)
34.076***
9.797***
3.251
10.105***
(2, .000)
(1, .002)
(1, .071)
(2, .006)
38.000***
10.925***
10.697***
13.700**
(6, .000)
(3, .012)
(3, .013)
(6, .033)
4.471
0.838
38.000***
3.576
(4, .346)
(2, .658)
(2, .000)
(4, .466)
20.175***
19.978***
1.009
2.187
(2, .000)
(1, .000)
(1, .315)
(2, .335)
14.457**
4.156
28.562***
7.931
(6, .025)
(3, .245)
(3, .000)
(6, .243)
Firms’ Management Practice Variables
Management of Translation Exposure
Reasons for Managing Translation
Exposure
Foreign
Management of Transaction Exposure
Exchange
Risk
Sources of Transaction Exposure
Identification
Variables
Management of Economic Exposure
Types of Exposures Identified
Policy on Translation Exposure
Foreing
Exchange
Policy on Transaction Exposure
Risk
Policy
Policy on Economic Exposure
Variables
Coverage of Translation Exposure
1
9.742
6.526
7.664
3.022
(8, .284)
(4, .163)
(4, .105)
(8, .933)
38.000***
38.000***
0.838
0.533
(2, .000)
(1, .000)
(1, .360)
(2, .766)
10.162
1.396
8.122**
10.446
(6, .118)
(3, .706)
(3, .044)
(6, .107)
38.000***
38.000***
0.838
3.498
Foreign Currency Borrowing or Lending
(4, .000)
(2, .000)
(2, .658)
(4, .478)
Firm’s Delegation of Authority to Enter
38.000***
38.000***
0.526
0.533
(2, .000)
(1, .000)
(1, .468)
(2, .766)
38.000***
38.000***
0.838
1.131
(4, .000)
(2, .000)
(2, .658)
(4, .889)
30.388***
10.925***
3.019
11.824**
(4, .000)
(2, .004)
(2, .221)
(4, .019)
0.629
0.080
3.619
0.604
(2, .730)
(1, .778)
(1, .057)
(2, .739)
20.175***
19.978***
1.009
2.187
(2, .000)
(1, .000)
(1, .315)
(2, .335)
8.833**
8.833***
3.901**
0.427
(2, .012)
(1, .003)
(1, .048)
(2, .808)
Sources of Firm's Foreign Exchange Rate
18.11***
5.024
1.859
11.975**
Forecast
(4, .001)
(2, .081)
(2, .395)
(4, .018)
27.664***
18.374***
19.798***
8.100
(6, .000)
(3, .000)
(3, .000)
(6, .231)
21.784***
18.250***
23.843***
10.119
(6, .001)
(3, .000)
(3, .000)
(6, .120)
6.418
1.691
38.000***
5.465
(8, .601)
(4, .792)
(4, .000)
(8, .707)
14.024
7.611
2.903
15.928**
(8, .081)
(4, .107)
(4, .574)
(8, .043)
Coverage of Transaction Exposure
Factors Driving Firm's FERM
Objectives of Firm's FERM
Firm’s Delegation of Authority on
Foreign Exchange Transactions
Firm’s Delegation of Authority to Hedge
Foreign Exchange Transactions
Type of Policy Adoption on Translation
Exposure
Type of Policy Adoption on Transaction
Exposure
Type of Policy Adoption on Economic
Exposure
Revision of Firm's FERM Policy
Choice of Internal Hedging Techniques
Used
Foreign
Exchange
Factors Influencing Choice of Internal
Hedging Techniques Usage
Risk
Management
Variables
Choice of External Hedging Techniques
Used
Factors Influencing Choice of External
Techniques Usage
*** Significant at 1%
** Significant at 5%
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