How different size of firms using financial hedging techniques such as Literature review

How different size of firms using financial hedging techniques such as Forwards, Futures, Options and Swaps to manage currency risk - Literature review Example The topic mainly emphasizes on the hedging techniques that is required for managing the risk. While conducting international trade operations it has been observed that foreign exchange plays an important and significant role. The techniques of hedging generally facilitates the firms that are active in the international market to reduce or minimize the exposure towards the variation in the foreign exchange rate which could adversely and severely affect the value of the asset and profit margin of the business. With the presence and the existence of the derivative market it facilitates and assists the business in management of risk, arbitration and speculation in the derivative as well as the spot market. The topic also emphasizes or deals with the various financial instruments such as the foreign currency debt and the derivative related to foreign exchange which helps in neutralizing the risk and the topic also highlights the various benefits and limitations of the management strategie s of the various exchange rate risks. The author Cowan in his study has emphasized on hedging the financial risk that is mainly faced by the large or the multinational companies is by hedging its risk by the financial product forward. The multinational companies generally prefer hedging through the foreign currency loans and the operational hedging. The forward contract is mainly arranged and dealt by explaining and customizing the agreement or the deal that is carried out between the parties for fixing and determining the exchange rate for carrying out the transaction in future. The arrangement is conducted in such a way that it will eliminate the risk related to foreign exchange. There are also disadvantages related to hedging with forward contract which is related or associated with fixing the amount at a future rate. Entering into the forward agreement or contract can be explained as the method of transferring or passing of the risk