Money Market Hedge Practice and Implication in Nepal : A Qualitative Study

It is imperative to understand the core concept and importance to highlight a forex money market hedge allows businesses to minimize their exposure to foreign exchange risks when engaging in international transactions. The key participants for this study were bankers who work in the credit departments and chief financial officers of the manufacturing companies who were directly involved in import letters of credit. The experts were asked about the practice of this technique in receivables and payable cases. Most of them are noted to be more useful in the case of payables in the Nepalese context as having a large amount of import from foreign countries. The study findings are categorized into five themes consisting of reasons for money market hedging, company size matters in hedging, financing decision-making, a better option than a forward contract, and additional understanding of financial reporting. The study highlights the key essential for applying a money market hedge is to proactively manage risks and make informed financial decisions and the degree of using this instrument depends on the firm's specific circumstances and the accuracy of exchange rate forecasts. Finally, this hedging technique is relatively beneficial for corporate houses to carefully assess transaction risks due to unanticipated changes in foreign exchange rates