Business Case Studies & Business Publications

Hedging Currency Risk at TT Textiles

Professor Rajesh C...

Case

Hedging Currency Risk at TT Textiles

Professor Rajesh Chakrabarti

ISB009 | Published February 15, 2013 | 15 pages Case

Collection: Indian School of Business

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This case highlights the impact of currency rate fluctuations on the profitability of an export-oriented textile manufacturing firm, TT Textiles. Against the backdrop of the economic crisis of 2007-08, when the Indian rupee (INR) was expected to appreciate to an unprecedented high of 35 INR/US$, the company had entered into a swap deal based on the historical stability of the Swiss franc (CHF) against the US dollar (US$). At the time of making it, the deal had looked relatively safe and very lucrative. But once the global financial crisis struck in 2008, it started making sizeable mark-to-market losses. The unexpected behaviour of the supposedly steady exchange rate between the US$ and the CHF was perplexing. Fortunately, things turned around in 2009 and TT Textiles was no longer in the red. Yet, there was uncertainty about the future. In March 2009, with three months left on the contract, Sanjay Jain, the managing director, was faced with the dilemma of whether to quit then and there or hold the deal till maturity.

This case aims to provide an understanding of the international economic and financial environment and its unique challenges. It will enable students to understand the exposure of companies to exchange rate risk and the management of such exposure as well as the difference between currency hedging and currency speculation.