An Empirical Study on Factors Affecting the Usage of Currency Derivatives with Reference to India

The present paper examines the use of currency derivatives in order to understand the driving forces behind its usage. The analysis carried on 83 non-banking Indian firms revealed that firms with greater growth opportunities and less financial constraints are more likely to use currency derivatives. This result suggests that firms might use derivatives to reduce cash flow variation that might otherwise preclude firms from investing in valuable growth opportunities. The overall analysis reveals that debt ratios i.e. foreign currency borrowing and long term debt ratio along with the income ratios like export ratio and profit before tax are the important microeconomic variables for using currency derivatives.