A STUDY ON RISK MANAGEMENT IN FOREX MARKET AT TOKYO INFO SOLUTION INDIA PVT LIMITED, SALEM

Submitted in partial fulfillment for the award of Master of Business Administration

Submitted by C.MURUGAN (09BIA1105) Under the Guidance of

Mr.N.SOUNDAR RAJAN., MBA

Department of Management Studies

AVS COLLEGE OF ARTS AND SCIENCES ATTUR MAIN ROAD SALEM 636106 2009-2011

ACKNOWLEDGEMENT
First I thank god for having given me an opportunity and strength to complete this dissertation successfully.

would

like

to

express

by

heart-felt

gratitude

and

thanks

to

Mr. K.RAJAVINAYAGAM, M.B.A. DEM., correspondent of AVS College of science.

I express our sincere thanks to Dr. K.A.MURUGESAN, M.A., M.Phil., Ph.D., and Principal of AVS College of Science . I also express my sincere indebteues to Head of the department, management studies

Mr.N.RAMESH, M.A (Eco), M.Phil (Eco)., B.Ed., M.B.A., M.Phil (Mgt)., PGDMM., M.A(PM&IR) .

I very thankful to my guide Mr.N.SOUNDAR RAJAN., MBA for guiding me to complete my project in a excellent way through much cooperation I would like to extend my gratitude towardsMr.RAVIKUMAR, manager Tokyo

Info Solution, Salem. For accepting as guide to my project work despite of his busy
schedule.

I would like to thank my parents, friends and those who helped me directly or indirectly in the successful completion of my project work

N.ASHOK (09BIA1079)

DECLARATION
Im C.MURUGAN (Regno.09BIA1105) pursuing M.B.A in AVS COLLEGE OF ARTS & SCIENCE, SALEM hereby declare that the project work entiled A STUDY ON RISK
MANAGEMENT IN FOREX MARKET AT TOKYO INFO SOLUTION INDIA PVT LIMITED,

Submitted to Periyar university, Salem in partial fulfillment of the requirements for the award of the degree of master of business administration is a bonafide work done by me under the guidance Mr.N.SOUNDAR RAJAN., MBA Faculty of AVS COLLEGE OF ARTS &

SCIENCE, SALEM. To the best of my knowledge, the work reported therein does not form a part of any other thesis or work on the basis of which a degree or award was conferred on an earlier occasion.

Place: Date:

CERTIFICATE
This is to certify that by Mr.C.MURUGAN Bearing Roll No: 09BIA1105 a Bonafied student of MBA, IV Semester, AVS COLLEGE OF ARTS AND SCIENCE, SALEM has successfully completed his project work titled A STUDY ON RISK MANAGEMENT IN FOREX MARKET AT TOKYO INFO SOLUTION INDIA PVT LIMITED, SALEM in partial of Periyar

fulfillment of the requirement for the award of the degree of MBA (Finance)

University under the guidance of Mr.N.SOUNDAR RAJAN., MBA . in AVS COLLEGE OF ARTS AND SCIENCE, SALEM

----------------------

-----------------------------

Faculty Guide

Head of the Department

Submitted for the project Viva Voce examination held on _____________

---------------------Internal Examiner

-------------------External Examiner

CONTENTS
Chapter No.
List of tables List of chart 1 General Introduction Industry profile Company profile
1 10 18

Particulars

Page No.

Introduction of the study Scope Objectives

25 26 27 28

Limitations 3 4 5 Research Methodology Analysis And Interpretation of The Data Findings Suggestions Conclusion Bibliography
29 32 52 53 54 55

CHAPTER-I GENERAL INTRODUCTION Forex risk management can make the difference between your survival or sudden death with forex trading. You can have the best trading system in the world and still fail without proper risk management. Risk management is a combination of multiple ideas to control your trading risk. It can be limiting your trade lot size, hedging, trading only during certain hours or days, or knowing when to take losses.

What is risk management?

A risk management plan includes strategies and techniques for recognizing and confronting these threats. Good risk management doesnt have to be expensive or time consuming; it may be as uncomplicated as answering these three questions:

1. What can go wrong? 2. What will we do, both to prevent the harm from occurring and in response to the harm or loss? 3. If something happens, how will we pay for it?

Benefits to managing risk Risk management provides a clear and structured approach to identifying risks. Having a clear understanding of all risks allows an organization to measure and prioritize them and take the appropriate actions to reduce losses. Risk management has other benefits for an organization,

Why is forex risk management important? Risk management is one of the most key concepts to surviving as a forex trader. It is an easy concept to grasp for traders, but more difficult to actually apply. Brokers in the industry like to talk about the benefits of using leverage and keep the focus off of the drawbacks.

This causes traders to come to the trading platform with the mindset that they should be taking large risk and aim for the big bucks. It seems all too easy for those that have done it with a demo account, but once real money and emotions come in, things change. This is where true risk management is important.

Controlling losses One form of risk management is controlling your losses. Know when to cut your losses on a trade. You can use a hard stop or a mental stop. A hard stop is when you set your stop loss at a certain level as you initiate your trade. A mental stop is when you set a limit to how much pressure or drawdown you will take for the trade.

Figuring out where to set your stop loss is a science all to itself, but the main thing is, it has to be in a way that reasonably limits your risk on a trade and makes good sense to you. Once your stop loss is set in your head, or on your trading platform, stick with it. It is easy to fall into the trap of moving your stop loss farther and farther out. If you do this, you are not cutting your losses effectively and it will ruin you in the end.

Using correct lot sizes Brokers advertising would have you think that its feasible to open an account with $300 and use 200:1 leverage to open mini lot trades of $10,000 dollars and double your money in one trade. Nothing could be further from the truth. There is no magic formula that will be exact when it comes to figuring out your lot size, but in the beginning, smaller is better. Each trader will have their own tolerance level for risk. The best rule of thumb is to be as conservative as you can. Not everyone has $5,000 to open an account with, but it is important to understand the risk of using larger lots with a small account balance. Keeping a smaller lot size will allow you to stay flexible and manage your trades with logic rather than emotions.

Tracking overall exposure While using reduced lot size is a good thing, it will not help you very much if you open too many lots. It is also important to understand correlations between currency pairs. For example if you go short on EUR/USD and long on USD/CHF, you are exposed two times to the USD and in the same direction. It equates to being long 2 lots of USD. If the USD goes down, you have a double dose of pain. Keeping your overall exposure limited will reduce your risk and keep you in the game for the long haul.

OBJECTIVES OF RISK MANAGEMENT There are two main areas of focus for Risk Management, each with its own set of objectives:

Internal * To reassure management that the business is aware of, and in control of, current and future business risks * To safeguard business assets and reputation * To help improve the business's operating performance and shareholder value * To improve efficiency by reducing risk exposure inherent in the business processes * To support the achievement of strategic goals

External * To ensure compliance with regulatory requirements * To deliver competitive advantage * To reassure stakeholders and interest groups that the business is actively managing risk

The process The Financial Services Authority has identified a number of key stages in the process of risk management: * Risk Identification * Risk Assessment * Risk Mitigation

* Risk Monitoring * Risk Reporting It is important to note that risk management does not end with the reporting of risk events - it is an ongoing and iterative process continually reviewing the organizational risk profile. Quantification Risk management should also support the quantification of any risk exposure such as: Value at Risk (VaR), Credit Exposures and loss of Systems and Controls.

However, the measurement approach for different categories of risk varies significantly, particularly in operational risk. This is an area where best practice is still under development, although the Basel Committee on Banking Supervision, which provides direction for European legislation, has offered significant guidance for financial institutions to follow.

Different types of business risk The Audit Commission, in its 2001 paper Worth the Risk, Improving Risk Management in Local Government, defines business risk as:

The threat that an event or action will adversely affect An organisation's ability to achieve its business and strategic objectives.

Here are further definitions for the different types of business risk, definitions which have either been drawn from or reflect the approach of both the Basel Committee of Banking Supervision and the Financial Services Authority:

Market Risk "Market risk is the risk that arises from fluctuation in the values of, or income from, assets."

Group Risk "Group risk is the potential impact of risks arising in the parts of a firms group as well as those resulting from its own activities." Credit Risk "Credit risk occurs whenever a firm is exposed to loss if another party fails to perform its obligations." Operational Risk "Operational risk is the risk of loss, resulting from inadequate or failed internal processes, people or systems, or from external events."

Liquidity Risk "Liquidity risk is the risk that a firm does not maintain sufficient financial resources to meet its liabilities as they fall due. Reputational Risk "Reputational risk is the risk that arises as a result of negative publicity having a detrimental effect on shareholder value and position in its market place."

The benefits of Risk Management

Proper risk management allows a financial institution to prosper through taking and avoiding risks. Well run companies are now taking a closer interest in what its management is doing to mitigate risk exposure, allowing for a more efficient, effective and prudently run business.

Good risk management will greatly improve the transparency of how an organization operates, providing a roadmap to achieve strategic goals and objectives and reassurance over the management of risks. The recently published Turnbull Guidance on Internal Control has focused attention not just on downside risk, but also on the positive aspects of risk. For the first time, the link between risk management and improved business performance is acknowledged in governance regulations.

Good risk management enables companies to seize opportunities, as well as prevent disasters.

It is vital to the well being of a company, therefore, that managers at all levels take risk management seriously and not simply during an annual certification process.

A risk based approach can make a company more flexible and responsive to market fluctuations, making it better able to satisfy the needs of its various stakeholders, in a constantly changing environment. Companies can also gain an advantage over competitors by identifying and adapting to circumstances faster than their rivals.

Types of Risk Management About Types of Risk Management Commercial enterprises apply various forms of risk management procedures to handle different risks because they face a variety of risks while carrying out their business operations. Various types of risk management can be categorized into the following:

*Operational risk management: Operational risk management deals with technical failures and human errors

* Financial risk management: Financial risk management handles non-payment of clients and increased rate of interest * Market risk management: Deals with different types of market risk, such as interest rate risk, equity risk, commodity risk, and currency risk *Credit risk management: Deals with the risk related to the probability of nonpayment from the debtors * Quantitative risk management: In quantitative risk management, an effort is carried out to numerically ascertain the possibilities of the different adverse financial circumstances to handle the degree of loss that might occur from those circumstances * Commodity risk management: Handles different types of commodity risks, such as price risk, political risk, quantity risk and cost risk

* Bank risk management: Deals with the handling of different types of risks faced by the banks, for example, market risk, credit risk, liquidity risk, legal risk, operational risk and reputational risk * Nonprofit risk management: This is a process where risk management companies offer risk management services on a nonprofit seeking basis * Currency risk management: Deals with changes in currency prices

* Enterprise risk management: Handles the risks faced by enterprises in accomplishing their goals * Project risk management: Deals with particular risks associated with the undertaking of a project * Integrated risk management: Integrated risk management refers to integrating risk data into the strategic decision making of a company and taking decisions, which take into account the set risk tolerance degrees of a department. In other words, it is the supervision of market, credit, and liquidity risk at the same time or on a simultaneous basis. * Software risk management: Deals with different types of risks associated with implementation of new software

Comparison of Chart Types As you must agree, Japanese Candlesticks appear to have great potential, but how do they stack up against other types of trading charts? To answer this question, a comparison will now be made against two other popular chart types, which are lines and bars.

Line Charts This visual representation simply draws a line from the closing price of one time frame through the closing price of the next one. The overall effect is to produce a line which can be used to assess the current trend of market price over a period of time.

INDUSTRY PROFILE

1.1. Foreign exchange market- An overview The foreign exchange market impacts directly every obligation, equity, manufacturing asset, private property and any investments accessible to foreign investors. Foreign exchange rates play an important role in financing government deficits, equity ownership in companies and realestate holdings. Foreign exchange trading helps to determine who hires and fires employees. The currency in your pocket is literally stock in your country, and like a share, its value varies on the international market providing traders with substantial opportunities for loss or profit. Foreign exchange markets- A brief history

In 1944, the Breton Woods Agreement was initiated in an effort to keep cash from draining out of war-ravaged Europe. Currency values were pegged to the U.S Dollar, which was then pegged to the price of gold in 1971, the modern era of foreign exchange first emerged with the collapse the Breton Woods Agreement The U.S Dollar was convertible into gold no longer, signalling an increase in currency market volatility and trading opportunities. In 1973 the collapse of the subsequent Smithsonian and European joint Float agreements signalled the real beginning of the free floating currency exchange system that drives the markets today As early as in the 1980s computer technology extended the reach of the exchange marketplace The values of the major world currencies become independent of each other, with intervention available to the states through the banking system only.

1.3. Major Forex Currencies: TABLE 1.1 Symbol Country Currency

USD

United States

Dollar

EUR

Euro members

Euro

JPY

Japan

Yen

GBP

Great Britain

Pound

CHF CAD

Switzerland Canada

Franc Dollar

AUD

Australia

Dollar

1.4. European Monetary Union

Austria

Schilling

Belgium

Franc

Finland

Marko

France

Franc

Germany

Mark

Greece

Drachma

Ireland

Punt

Italy

Lira

Luxembourg

Franc

Netherlands

Guilder

1.5. Markets-size and scope Foreign Exchange

The foreign exchange market stunts growth of the combined operations of the New York, London, and Tokyo futures and stock exchanges. Daily turnover on the spot market is about US$4.5trillion per day Forward outright FX trading and spot transactions take place in the inter-bank market 51% of the market is in spot FX transactions, and 32% of the market is in currency swap transactions Forward outright FX transactions represent 5% of this daily turnover Options on inter-bank FX transactions are making up 8% Thus the inter-bank market accounts for96% of the global foreign exchange market 4% are divided among all the remaining global futures exchange 1.6. The role of forex in the global economy The foreign exchange market has always been an invisible hand guides the sale of goods, Services and raw materials in every country in the world. The forex market was created by Necessity. Traders, investors, bankers, exporters and importers recognized the benefits of speculating for profit, or hedging risk. The importance of this market comes from its sheer size, Complexity and almost limitless reach of influence. The market has its own momentum: it follows mown imperatives and comes to own conclusions These conclusions make impact on the value of all assets it crucial for every individual or institutional investor to understand the foreign exchange markets and the forces behind that Ultimate free-market system.

Interbank currency contract and options, on the contrary to futures contracts, are not traded on exchanges d are not standardized. Banks and dealers act as principles in these markets. They Negotiate each transaction on an individual basics forward cash or spot trading in currencies is essentially unregulated there are no limitations on speculative positions and daily price movements. 1.7. History of Currency Trading The Gold Standard, 18161933.The gold standard was a fixed commodity standard: participating countries fixed a physical weight of gold for the currency in circulation, making it directly redeemable in the form of the precious metal. In 1816 for instance, the pound sterling was defined as 123.27 grains of gold, which was on its way to becoming the foremost reserve currency and was at the time the principal component of the international capital market. This led to the expression as good as gold when applied to Sterling the Bank of England at the time gained stability and prestige as the premier monetary authority. Of the major currencies, the U.S. dollar adopted the gold standard late in 1879 and became the standard-bearer, replacing the British pound when Britain and other European countries came off the system with the outbreak of World War I in 1914. Eventually, though, the worsening international depression led even the dollar off the gold standard by 1933; this marked the period of collapse in international trade and financial flows prior to World War The Fed As an investor, it is essential to acquire a basic knowledge of the Federal Reserve System (the Fed). The Federal Reserve was created by the U.S. Congress in 1913. Before that, the U.S. government lacked any formal organization for studying and implementing monetary policy.

Consequently, markets were often unstable and the public had very little faith in the banking system. The Fed is an independent entity, but is subject to oversight from Congress this means that decisions do not have to be ratified by the president or anyone else in the government, but Congress periodically reviews the Feds activities. The Fed is headed by a government agency in Washington known as the Board of Governors of the Federal Reserve. The Board of Governors consists of seven presidential appointees, who each serve 14-year terms. All members must be confirmed by the Senate, and they can be reappointed. The board is led by a chairman and a vice chairman, each appointed by the president and approved by the Senate for four year terms. The current chair is Alan Greenspan, who has been chairman since 1987. His latest term expires in 2006. There are 12 regional Federal Reserve Banks located in major cities around the country that operate under the supervision of the Board of Governors. Reserve Banks act as the operating arm of the central bank and do most of the work of the Fed. The banks generate their own income from four main sources: 1. Services provided to banks 2. Interest earned on government securities 3. Income from foreign currency held 4. Interest on loans to depository institutions The income generated from these activities is used to finance day-to-day operations, including information gathering and economic research. Any excess income is funneled back into the U.S. Treasury.

1.8. Securities and Exchange Commission, 19331934 When the stock market crashed in October 1929, countless investors lost their fortunes. Banks also lost great sums of money in the Crash because they had invested heavily in the Markets. When people feared their banks might not be able to pay back the money that depositors had in their accounts, a run on the banking system caused many bank failures. With the Crash and ensuing depression, public confidence in the markets plummeted. There was a consensus that for the economy to recover, the publics faith in the capital markets needed to be restored. Congress held hearings to identify the problems and search for solutions. Based on the findings in these hearings, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws were designed to restore investor confidence in capital markets by providing more structure and government oversight. The main purposes of these laws can be reduced to two common-sense notions: 1. Companies that publicly offer securities for investment dollars must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing. 2. People who sell and trade securities brokers, dealers, and exchanges must treat investors fairly and honestly, putting investors interests first. 1.9. The Breton Woods System, 19441973 The post-World War II period saw Great Britains economy in ruins, its infrastructure having been bombed. The countrys confidence with its currency was at a low. By contrast, the United States, thanks to its physical isolation, was left relatively unscathed by the war. Its industrial might was ready to be turned to civilian purposes. This then has led to the dollars rise to

prominence, becoming the reserve currency of choice and staple to the international financial markets. Breton Woods came about in July 1944 when 45 countries attended, at the behest of the United States, a conference to formulate a new international financial framework. This framework was designed to ensure prosperity in the post-war period and prevent the recurrence of the 1930s global depression. Named after a resort hotel in New Hampshire, the Breton Woods system formalized the role of the U.S. dollar as the new global reserve currency, with its value fixed into gold. The United States assumed the responsibility of ensuring convertibility while other currencies were pegged to the dollar. Among the key features of the new framework were: Fixed but adjustable exchange rates The International Monetary Fund The World Bank

COMPANY PROFILE TOKYO INFO SOLUTION (INDIA) PRIVATE LIMITED

About Us

Tokyo Info Solutions is a professionally managed company Incorporated Since 2007 providing investment management services on various funds & schemes to Indian & global investors across various asset classes. The group combines extensive national vision with local insight with a team of professionals operating out of its Tamil Nadu Based headquarters. 1.2.2 Tokyo Info Solutions Advises schemes, targeting an investor base of non-institutional investors including high networth individuals, and institutional investors including insurance companies, banks, pension funds & corporate houses. The Tokyo Info Solutions business attributes its success to constantly listening to investors and responding to their needs with innovative investor friendly products. Tokyo Info Solutions believes that it has the ability to recognize investment opportunities, which help raise capital and deploy the same in a manner designed to maximize long-term value.

1.2.3 Vision To be forward in thinking and in action in the delivery of investment solutions to Tokyo Info Solutions investors To be a truly active manager of innovative and thoughtful investment themes, with a focus on adding value to investments to enhance exit valuations on behalf of investors. To provide a long term, innovative & sustainable platform to investors in which the interests of Tokyo Info solutions staff, stakeholders stake-holders & investors & staff, are truly aligned. To provide a positive and motivating workplace environment where the employees achieve intellectual, practical and overall career growth. To be India's premier investment manager; provide strategic and operational support to our business partners; and deliver consistent superior returns to our investors. To build a new investing paradigm based on strategic and operational support to our business partners. To be known for creating and managing innovative market leading products tailored to Indian markets.

1.2.4 Mission

Tokyo Info Solutions, the name. Since each successful investment decision & every smiling investor only pushes the group to set newer & higher targets for achievement, the name Tokyo Info Solutions was chosen as it symbolizes passing every conquered achievement and setting the next one as the new target. With every fund closing beyond set benchmarks, Tokyo info solutions strives to reach & surpass the next milestone in investment excellence.

1.2.4 Tokyo Info Solutions Values We are a group of professionals and believe in working in a manner that is ethical, professional and straightforward. We take immense pride in the professional quality of our work. We are a professionally managed business house and are not aligned or bear allegiance to any corporate group. We believe in upholding and creating world class standards of corporate governance. We want to partner with professional individuals and organizations who we believe have the

requisite experience & expertise in the sectors we invest in We base our entire work on the values of Integrity, Indianness, Collaboration, Professionalism, Independence and Trust.

1.2.5 The Quality Management System (QMS) Established at Tokyo Info Solutions is laid on the concept of process methodology approach and accordingly all the process are identified. To ensure that the processes are monitored, measured and performance is analyzed, process quantifiers are established through Business Operating System. The QMS is controlled by effective documentation and ongoing monitoring of Top Management. 1.2.6 The statement of quality policy is as mentioned below Tokyo Info Solutions India Private Limited, its affiliates & joint ventures strive to meet & exceed Customer Satisfaction across all their businesses, through a system of transparent dealing & information flow. With a view to meet all necessary Industry Standards & applicable Legal & Regulatory benchmarks, Tokyo Info Solutions combines its human & technical resources in the most innovative manner, in order to provide world class quality services in all areas of its operations and continually improving the effectiveness of the quality management system . Tokyo Info Solutions aims to achieve and sustain market leadership in the area of alternative asset investment advisory services, through its vision in being a reliable partner to its customers,

employees, partners & associates apart from being a responsible corporate citizen committed to the development of sustainable business practices

1.2.7Active Management INVESTMENT PHILOSOPHY As various sectors driven by consumer consumption continue to grow at a rapid pace, Tokyo info solutions strives to be a truly active manager of investments, which significantly enhances the chances of success of the portfolio companies and projects. Investment teams at Tokyo Info Solutions apply their experience in a hand on way to ensure that investors interests and objectives are vigorously pursued in all situations. They are focused on identifying new complementary investment strategies and opportunities across various sectors. Tokyo Info Solutions seeks to have a platform which investors within India and across the globe trust to deliver consistently high returns through a stringent selection process and a high quality nurturing team. This unique combination is the basis for building market leading and sustainable businesses, which will benefit Tokyo Info Solutions clients in the long term. Tokyo Info Solutions prides itself for the list and quality of clients, investors, investments and strives to be the leader in corporate governance and communication transparency with all stakeholders. As it expands its investments platform, Tokyo Info Solutions believes that its

reputation & market position will lead to newer complementary investment strategies and opportunities across various sectors.

1.2.8 INVESTMENT NUTURING The differentiating aspect of Tokyo Info Solutions investment management style is to build long term profitable returns on investments through Investment Nurturing. Moving from a pure financing model to an investing model, fund managers at Tokyo Info Solutions work closely with investee companies to provide strategic/operational inputs in helping to grow the entity. Continuous monitoring of operations & finances of portfolio companies, strengthening systems, controls & corporate governance in line with best practices help in garnering returns even during recessionary time. Development Management 1.2.9 Project Planning & Design The Planning and Design team is responsible for supervision of the planning and design aspects and makes sure that all related activities are well co-ordinate and integrated. It also focuses on incorporating Sustainable Architecture and Green Building features into the projects. Construction Management Construction Management for a project involves overseeing construction activities, relationships with suppliers, vendors, architects during execution of various projects.

1.2.10 Team Leadership We, at Tokyo Info Solutions believe that the typical private equity model has to be modified to be successful in India. Our team applies their experience in a hands-on way to ensure that investors interests and objectives are vigorously pursued in every situation We seek to provide a platform for Indian and global investors to earn better returns through a stringent investment selection process and quality nurturing processes. This unique combination is the basis for building market leadership and sustainable businesses, which will benefit investors in the long term. We strive to be the leader in corporate governance and communication transparency with all stakeholders across every investment scenario.

CHAPTER-II INTRODUCTION OF THE STUDY TITLE OF THE STUDY

The study is carried under the title of A Study on Risk Management in Forex market at Tokyo info solution (India) Pvt. Ltd., Salem.

SCOPE OF THE STUDY:

The scope of the study is limited to the stocks of Tokyo info solution (India) Pvt. Ltd., for a period of 45 days

The significance of the study lies in the fact that it helps to make decision as regards to whether it is wise to invest in Forex institutions in India and in case of investment which is already made in the scrip's of Forex companies whether it is wise to hold on or to sell the shares.

OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVES 1. To perform Risk Management of five major players in the Forex sector and to evaluate the intrinsic value of shares of these companies.

To identify and select the five major forex in the Indian Forex sector as per market capitalization.

To give the investor an idea to the avenues in Forex sector in India where in he could make investment.

LIMITATIONS OF THE STUDY:

The Indian stock market is uncertain and fluctuations are not predictable. Its highly difficult for investors to identify a good stock to invest and hence a close watch on the stock price is required.

This demands the investors to be rational and scientific in his investment activity. As such he needs to evaluate a lot of information about the past performance and the expected future performance of the company, industry and economy as a whole before taking the investment decision.

CHAPTER-III RESEARCH METHODOLOGY

Sample Population The study methodology is interdisciplinary, drawing from gerontology, nursing, social work, and economics. Detailed primary data were collected from eight NYC agencies providing FOREX services along with full case management. In-depth retrospective case record reviews were conducted for 114 community-based clients referred for FOREX services during the study period 20052010. Client Data Comprehensive information on client characteristics, services, and outcomes was obtained using standardized data abstraction forms. This data was supplemented by discussions with program leaders, expert review and consensus. The data collection instrument was developed building on the surveys conducted in1994 by the Reingold Institute and the 1995 AARP national FOREX Survey. The data categories included: general demographics,

entitlements, legal directives, housing, Activities of Daily Living and Independent Activities of Daily Living, mobility, home care, social function, health, income/resources, expenses, reason for FOREX referral, FOREX services received, and outcomes, including

institutional placement or death at home. The instrument also included open-ended memo fields for several of the categories to allow the investigators to include additional data or explanations of individual

circumstances. The added variables included: eviction proceeding, isolation, receipt of 24hour home care, receipt of grants/stipends, appointment of representative payee, delinquent bills, debt management receipt, advance referrals, directives, legal referrals, mental health

family takeover of financial management, undiagnosed mental health issues,

placement in a nursing home, and death at home. Summary variables, constructed for the study, are defined below:

Housing Crisis: Letter of intent issued, rent/mortgage in arrears, hoarding problem Benefits Crisis: Failure to obtain public benefits Financial Crisis: Self-neglect, self-endangering behavior, financial exploitation by others, delinquent bills Health Crisis: Health status rated fair or poor Mental Health Crisis: Diagnosed mental illness or diminished mental capacity/dementia; undiagnosed mental illness (identified by social worker) Social Isolation: No visitors or does not leave home for social purposes.

Data were extracted from three different times periods in the case trajectory: 1) when the case was opened; 2) when the financial problem developed; and 3) during the ensuing

outcomes phase. Figure 1 below describes the sample progression by phase. The data abstraction process was done in collaboration with the FOREX agency director or social worker who was given a comprehensive, in-depth client case review protocol to use in preparing each case for the interview sessions. Interviews of agency

representatives were conducted in-person (a small number were interviewed via the phone) with the research investigator visiting each agency. To maintain total client anonymity the agency representative read the information out of each file while the interviewer recorded it on the data collection instrument. The total population

of eligible clients was selected in each agency. A total of 114 cases were reviewed. Economic Data Economic costs of FOREX services were estimated using standard economic methods of resource valuation for all services received by each individual client over the trajectory of his or her care. All services provided per client were identified during the client chart review. Hours per service were based on estimates provided us through a standardized protocol reviewed by our FOREX Advisory Panel. Final estimates of hours used per specific FOREX service are based on our constructed weighted averages of estimates provided to us by four service providers who responded to our costing protocol. Total costs are estimated as a product of average hours(/days) and average hourly(/daily) rates. Cost

We use the FOREX survey data to estimate average hours of home care use and National Nursing Home Survey to estimate average length of stay (in days) in nursing homes. Cost

estimates for hourly rates of home care providers are obtained from the Occupational Employment Statistics

and nursing home costs are estimated from per-diem charges for individuals with both general health crisis and physical health crisis, from the NNHS (2004) survey. All costs are adjusted to 2007 prices, using the Producer Price Index20.

Sample Characteristics Of 114 referrals, 93 clients accepted FOREX services. Sixty-three clients received FOREX services until institutionalization or death; 30 clients left the program and were lost to follow-up. The main reasons for leaving the program were: moved out of state, family took over of finances, guardian appointment, or client refusal. Table 1 on the next page presents the demographic characteristics of the full sample.

CHAPTER-IV ANALYSIS AND INTERPRETATION TABLE-1 COMBINED EFFECTS OF YEN DEPRECIATION

Before FX Change

Mfg

U.S. Dist.

System Results

U.S. Demand 10,000

Quantity Avg. Selling Price Revenue Cost of Goods SG&A Profit Exchange Rate (yen per dollar) 200,000 100 100 1,000,000 800,000 1.20 12,000 10,000 1,000 1,000 100 12,000 8,000 1,000 3,000

Interpretation : Above table shows that provide an example of how the combined effects of yen depreciation may be distributed among a Japanese manufacturer having only yen-based costs, its U.S. distributor, and U.S. consumers. Before the yen depreciation, assume the average unit price is $1.20, which provides the distributor and manufacturer with operating margins of approximately 8.3 and 20 percent, respectively

CHART-1 COMBINED EFFECTS OF YEN DEPRECIATION

TABLE-2 EFFECTS OF THE CURRENCY CHANGE

After FX Change

Mfg

U.S. Dist.

System Results

U.S. Demand 11,000

Total Channel

Quantity Avg. Price Revenue Cost 1,144,000 880,000 12,650 10,400 12,650 8,000 Selling 104 1.15

SG&A Profit Exchange Rate 264,000 110

1,100 1,150 110

1,100 3,550

Change in Profit Change in Profit and Consumer Surplus Share of Total Change

64,000 400 150 550 525 1,175

37%

14%

51%

49%

100%

Interpretation:

Above table shows how the effects of the currency change may be shared. The ability of each actor to retain a share of the benefits depends on the price elasticity of demand at each level and the willingness of the manufacturer and distributor to pass the benefit to the consumer in order to increase sales. In the example below, the manufacturer increases its yen-selling price by 4 percent to obtain a portion of the benefits of the positive currency move.

CHART-2

EFFECTS OF THE CURRENCY CHANGE

TABLE-3 ACME Acme Inc. Acme GmbH Consolidated

Sales COGS Gross Profit Operating Expense Booked Operating Profit Exchange Rate

70.00 50.00 20.00 10.00 10.00

100.00 70.00 30.00 20.00 10.00 1 20.00

Interpretation: Above table shows Acme Inc. manufactures products in the United States and sells them in Germany through a wholly-owned distributor, Acme GmbH. Acme worldwide has

economic FX risk because Acme Inc. incurs costs in U.S. dollars and Acme GmbHs sales are

in Euro. Assume that the parties contractually allocate all economic FX gain or loss to Acme GmbH and that this is arms-length behavior.

Under the CPM transfer-pricing method, assume Acme GmbH must earn a 10-percent operating margin. In the following example, all transactions occur at a 1:1 euro/dollar

exchange rate, which has been a stable rate.

CHART-3 ACME

TABLE-4 ACME GMBH THUS INCURS THE CURRENCY LOSSES Acme Inc. Acme GmbH (in euro) Sales COGS 70.00 50.00 100.00 77.00 Acme GmbH (in dollars) 90.91 70.00 Consolidated

Gross Profit Operating Expense Booked Profit Exchange Rate Operating

20.00 10.00 10.00

23.00 20.00 3.00

20.91 18.18 2.73 12.73

1.10

1.10

Interpretation: Above table shows Acme GmbH thus incurs the currency losses, as the parties agreed, but earns only a 3-percent operating margin. To maintain Acme GmbHs required 10-percent operating margin, the parties must make an adjustment that reduces Acme GmbHs COGS payment to Acme Inc. from 77 to 70,

CHART-4 ACME GMBH THUS INCURS THE CURRENCY LOSSES

TABLE-5 SINCE THE EXCHANGE RATE Acme Inc. Acme GmbH Acme GmbH Consolidated (in $)

(in euro) Sales COGS Gross Profit Operating Expense Booked Operating Profit Exchange Rate 63.64 50.00 13.64 10.0 3.64 100.00 70.00 30.00 20.00 10.00 1.10

(in dollars) 90.91 63.64 27.27 18.18 9.09 1.10 12.73

Interpretation: Since the exchange rate has been stable, neither Acme Inc. nor Acme GmbH incurs an economic FX gain or loss. Acme GmbH earns the required 10-percent operating margin. Now assume that the euro/dollar exchange rate changes to 1.10:1. Assume further that the FX change is not met with commensurate price inflation in Germany so that Acme GmbHs sales remain 100.

CHART-5 SINCE THE EXCHANGE RATE

TABLE-6 LOSSES FROM THE FX CHANGE Acme Inc. Acme GmbH (in euro) Sales COGS Gross Profit Operating Expense Booked Operating Profit Exchange Rate 63.64 50.00 13.64 10.0 3.64 100.00 70.00 30.00 20.00 10.00 1.10 Acme GmbH (in dollars) 90.91 63.64 27.27 18.18 9.09 1.10 12.73 Consolidated (in $)

Interpretation: Above table shows Acme Inc. now incurs the losses from the FX change. The CPM effectively changes the parties agreed allocation of FX risk. An FX Experience Adjustment would be needed to return the parties to their agreed allocation of FX risk

CHART-6 LOSSES FROM THE FX CHANGE

TABLE-7 ASSUME THE SAME FACTS AS IN THE BASE CASE Acme Inc. Sales COGS SG&A/routine profit Residual Profit Exchange Rate (Euro per $) Profit Split Factor 50% 50% 70.00 50.00 10.00 10.00 100.00 70.00 20.00 10.00 1 20.00 Acme GmbH Consolidated

Interpretation: Above table shows assume the same facts as in the base case CPM example above, but under an RPSM that provides for a 50:50 profit split between Acme Inc. and Acme GmbH. With a stable 1:1 exchange rate

CHART-7 ASSUME THE SAME FACTS AS IN THE BASE CASE

TABLE-8 ACME GMBH THUS INCURS THE LOSSES Acme Inc. Acme GmbH (in euro) Sales COGS SG&A/routine profit Residual Profit Exchange Rate (Euros per $) Profit (before Split Factor 78.55% 21.45% 21.45% 70.00 50.00 10.00 10.00 100.00 77.00 20.00 3.00 1.10 Acme GmbH (in dollars) 90.91 70 18.18 2.73 1.10 12.73 Consolidated

applying TPM)

profit-split

Interpretation: Above table shows Acme GmbH thus incurs the losses from the unfavorable FX change, but earns only 21.45% of residual profit. To maintain the 50:50 profit split, the parties must reduce Acme GmbHs COGS payment to Acme Inc. from 77 to 73

CHART-8 ACME GMBH THUS INCURS THE LOSSES

TABLE-9 ACME GMBH NOW SHARE EQUALLY THE FX LOSS Acme Inc. Acme GmbH (in euro) Sales 66.36 100.00 90.91 Acme GmbH (in dollars) Consolidated

COGS SG&A/routine profit Residual Profit Exchange (Euros per $) Profit Split Factor Rate

50.00 10.00 6.36

73.00 20.00 7.00 1.10

66.36 18.18 6.37 12.73

50%

50%

50%

Interpretation: Above table shows Acme Inc. and Acme GmbH now share equally the FX loss, changing the parties agreed allocation of FX risk. An FX Experience Adjustment would be needed to return the parties to their agreed allocation of FX risk.

The above example assumes that the parties share FX risk in a different proportion than they share residual profit. This may not be the case

CHART-9 ACME GMBH NOW SHARE EQUALLY THE FX LOSS

TABLE-10 BEGINNING OF THE YEAR Balance at Jan. 1 Cash Deposit in Yen Japanese Interest Rate Exchange Rate (yen per dollar) Cash Deposit after Conversion into Dollars U.S. Interest Rate Cash Deposit in Dollars 4% 100.00 104.00 104.00 100.00 105.00 95.45 10,000 5% 100 100 110 Balance at Dec. 31 10,500 Balance at Dec. 31 10,050

Interpretation: Above table shows At the beginning of the year, Acme has a cash balance of $100, which it then converts into yen- based deposits to earn 5 percent interest. After one year, Acme withdraws the yen to pay its expenses in dollars. The value of the deposit in dollars will depend upon the exchange rate at the time of withdrawal. If the exchange rate remains the same (100 yen per dollar) then it will receive a $105 return on its deposit, which is higher than the $104 Acme would have earned from dollar deposits. However, if the exchange rate changes to 110 yen per dollar, the dollar value of its deposits falls to $95.45 even though Acme

earned 5 percent on its yen deposit. This potential loss of dollar purchasing power represents financial FX risk. Given that Acmes revenue and costs are in dollars, it may avoid this risk by holding only dollar denominated assets CHART-10 BEGINNING OF THE YEAR

CHAPTER-V FINDINGS Japanese manufacturer having only yen-based costs, its U.S. distributor, and U.S. consumers The effects of the currency change may be shared. The ability of each actor to retain a share of the benefits depends on the price elasticity of demand at each level and the willingness of the manufacturer and distributor to pass the benefit to the consumer in order to increase sales. Under the CPM transfer-pricing method, assume Acme GmbH must earn a 10-percent operating margin. Assume the same facts as in the base case CPM example above, but under an RPSM that provides for a 50:50 Acme GmbH thus incurs the losses from the unfavourable FX change, but earns only 21.45% of residual profit. FX Experience Adjustment would be needed to return the parties to their agreed allocation of FX risk.

SUGGESTIONS Further to this paper, we are currently studying the situation of risk management practices with companies in India. A similar survey is being conducted. It would be interesting to know the similarities and differences of risk management practices of enterprises sharing the same culture but with different economic and political backgrounds. We hope that a formal comparison of risk management practices of Tokyo info solutions (India) Pvt. Ltd., between the two cities may be carried out once we have collected sufficient data for the analysis.

CONCLUSIONS We have always faced many challenges in dealing with safety, health and environmental risks. Recent terrorist activities have brought these issues to the fore in very graphic ways. Successful risk analyses require scientists and engineers to undertake assessments to characterize the nature and uncertainties surrounding a particular risk. One also needs social scientists to characterize the factors that influence the perception of a risk by individuals, groups and organizations. Finally there is a need for develop strategies that involve risk communication, economic incentives, standards and regulations for managing these risks. Given the challenges in processing information on these risks as well as the interdependencies between individuals and firms which create negative externalities, public-private partnerships are necessary for developing risk management strategies that will reduce future losses efficient while satisfying the needs of the affected stakeholders.

BIBLIOGRAPHY

Flynn, James., Slovic, Paul. and Kunreuther, Howard. (eds) (2001) Risk Media and Stigma London, UK: Earthscan Grossi, Patricia, and Kunreuther, Howard (in press) New Approaches to Managing Risks from Natural Hazards Boston: Kluwer Academic Publishers Haimes, Yacov. (1998) Risk Modeling, Assessment and Management Wiley New York: John

Kunreuther, Howard. and Heal, Geoffrey. (2002) Interdependent Security Journal of Risk and Uncertainty 26:231-49 Morgan, Granger, Fischhoff, Baruch, Bostrom, Ann and Atman, C.J. (2002) Risk communication: A mental models approach New York: Cambridge University Press. Slovic, Paul (2000) The Perception of Risk London, UK: Earthscan

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