Hedging foreign exchange risk through volatility mapping of Indian ADRS and GDRS

The research explored the efficient utilization of share price volatility in different stock exchanges in different time zones to gain short-term liquidity in evolving foreign exchange problems for the exporters. The currency rates are fluctuating. To hedge the foreign exchange loses, the exporters engage in different activities. One of the ways to hedge the foreign exchange risk is creating short-term liquidity by way of buying and selling ADRs/GDRs through their financial advisories. Reserve Bank of India permitted to retain the proceeds of ADRS/GDRs in abroad for future foreign exchange requirements. Two-way fungibility of ADRS/GDRs issued by Indian companies was permitted by the Government of India and RBI. Indian ADRs are consistently traded at 30–130% premium over the domestic stock (Gita, 200B). Rabinovitch (2004) examined the effects of fixed exchange rates and capital convertibility restrictions in Chilean and Argentinean ADRs. The present research was done to explore the possibilities of predicting the trend of Indian ADRs/GDRs trading in NYSE and Berlin stock exchange based on the Indian NSE price movements.