Indian IT companies losing bug time trying to hedge Dollar and Euro
Babu Ghanta
Jul. 20, 2007

The Indian outsourcing companies are badly hurt by the rising Rupee against dollar. Every 1 Rupee fall of dollar reduces profit of these companies by 1.8%. Fighting that trend, the Indian IT companies recently have opted for hedging foreign currencies. But the hedging techniques were faulty. These IT companies have lost a lot more from these hedges.

Hedging, for starters, is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity, as Wikipedia defines.

Currency ‘volatility’ can destroy the margins. “When you convert all costs on the production side, and all sales receipts from the retail side, back into your home currency, you may be alarmed to find that your profits have diminished significantly, or disappeared altogether.”

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