Abstract

The case study ‘Currency Hedging at HCL Tech’ discusses the currency hedging undertaken by HCL Technologies Limited (HCL Tech). The company suffered huge foreign exchange losses, due to unexpected high volatility of USD/INR exchange rate. The foreign exchange losses not only had huge fluctuations on the reported profits of HCL Tech but also created a mismatch between the reported revenues and the foreign exchange losses/gains. To overcome such problems, HCL Tech came up with certain measures like cancellation of currency hedging contracts and adaption of cash flow hedge accounting in conformity with the US GAAP. This case study provides in depth understanding of the situation in which HCL Tech suffered huge foreign exchange losses and the measures taken by the company to overcome from it. In addition to this, the case study provides the views of stock broking houses and analysts on the decisions taken by HCL Tech.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Have an in-depth understanding of hedging currency risk.
• Understand the advantages and disadvantages of hedging currency risk.
• Have an understanding of HCL Tech’s foreign exchange hedge accounting policy.
• Understand the currency hedging strategies adopted by HCL Tech in accordance with Rupee fluctuations.
• Understand the forward cover cancellations of HCL Tech.

Keywords

Currency risk, Foreign exchange hedge accounting policy, HCL Tech, Currency hedging, Forex market, Exchange rate, Mark to market, US GAAP, Forex exchange risk.