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The purpose of this paper is to examine if the volatility in the US dollar interest rate swap market impacts the volatility of the swap rates in the Indian swap market.

The authors use GARCH, EGARCH, and TGARCH modeling to examine volatility spillover between the US and Indian interest rate swap markets.

Evidence is found of volatility transmission from the US dollar interest rate swap markets to the Indian swap markets. There is no evidence of spillover from the Indian swap markets to the US swap markets. Furthermore, the spillover impact from the US markets to the Indian markets is also asymmetric. The impact on volatility is asymmetric for one‐year swaps, but not for five‐year swaps.

Findings from this study will also identify any arbitrage opportunities that may exist between different segments of the US dollar interest rate swap markets and help to improve interest rate swap market efficiency.

If the financial market liberalization process in these nations has been successful in integrating their market into the pool of the world market, then a foreign investor would not demand a risk‐premium in the returns on deposits in these markets. The findings of this paper are also relevant for other emerging markets' policy makers, as they try to become more integrated in the global economy and try to resolve market inefficiencies and country risk so that obstacles to foreign investments can be removed.

Credit default swaps (CDSs) are among the most widely used credit derivatives since their innovation and designed to hedge the credit risk of reference entities. They were exposed after the global financial crisis of 2007–08, and were blamed for its occurrence. This paper aims to describe the fundamental mechanism of CDSs, demonstrating how a CDSs contract works. Further, this study explores the growth of the global and Indian CDS market by taking a holistic perspective.

An objective-driven descriptive research design is adopted to achieve a rigorous and accurate analysis of the study. Therefore, research papers from high-impact journals have been carefully reviewed to achieve the aim of the study.

The study shows that CDSs are still in their infancy in India. Banks are the primary market makers and users in the Indian CDSs market; therefore, regulatory authorities must assist them to boost the market. For banks to become more confident, they should gain experience and knowledge from other active CDSs markets around the world.

This study attempts to provide insights into the current state of the global as well as the Indian CDS market. Further, this study suggests approaches for the Indian banking sector to play an active role in the Indian CDSs market.

Interest rate derivatives (IRDs) are the essential components of financial risk management and are used across various industry sectors. The objective is to analyze the differences in approach to managing interest rate risks between the Indian corporates that execute IRDs and the ones that do not.

Interest rate fluctuations require Indian corporates to hedge their exposures in foreign currency interest rates. This is all the more true for mid-sized corporates because of their balance sheet exposures. Additionally, they may not have the resources to formulate risk management policies. This paper analyzes data collected from financial statements of a diverse set of companies that use IRD and helps in formulating such a strategy.

The results indicate significant differences for some of the parameters like information asymmetry and agency cost between users and non-users of IRDs. The study further suggests causality between users of derivatives and parameters like size, growth and debt.

The study compares users and non-users of IRDs, thereby identifying factors unique to users of IRDs. It also studies causality relations which explain the motivation to do IRDs. Thus, it enables risk managers to use this as a reference point to decide on their strategies.

While there are multiple studies across geographies and sectors including commercial banks in India on the usage of interest rate swaps, this study focuses on Indian mid-tier corporates. Furthermore, the study distinguishes between users and non-users based on financial parameters, which in turn would provide a framework for decision-hedging strategies.

The learning outcomes of this case study are to understand the business model canvas and value propositions and apply advanced business innovation tools in electric vehicle business models; evaluate the current cargo vehicle scenarios at national and global levels and draw out the possibilities and costs for a new player; extrapolate the future scenario of the cargo economy, its electrification and positioning in a business-to-business (B2B) and business-to-customer (B2C) segment, especially for a developing economy; and improve the student’s ability to get organisational buy-in and execute new business models.

LoadExx is a fully electrified electric cargo service focusing on logistics in Kolkata, a metropolitan city in the eastern part of the country. The service of LoadExx commenced in January 2021 in the B2B segment after overcoming its then issues of driver hesitancy and customer anxiety and financial issues to adopt electrified cargo systems. The conundrum faced by LoadExx in its commencement thus had been solved under the able guidance of its owner Amit Arora. The case study was positioned four months after the commencement of LoadExx. To gain market power and traction, Arora and his team came up with the idea of market expansion. However, the current conundrum was whether LoadExx would enter the B2C segment in its current location or expand with the same business model to other parts of the country. The expansion was to be implemented in the immediate future to retain its rarity and reduce the imitability of the business model of LoadExx. This case study details the logistics and market operations of the cargo sector, especially electric cargo, in a developing economy, especially India. A teaching note supplementing the “Cracking the conundrum of e-cargo logistics: curious case of LoadExx” case study has been provided.

This case study is designed for undergraduate and postgraduate students and senior management professionals in executive education programmes undertaking courses in logistics management and supply chain operations and related cargo logistics courses. This case study denotes integrating key processes from end-users and gaining the trust of drivers, thereby showing the perspective of the plight and conundrums of a cargo aggregator working in the B2C segment. This case study could be used to discuss concepts related to not-for-profit firms, aggregators, policymakers and think tanks.

Teaching notes are available for educators only.

CSS 9: Operations and logistics.

Exchange traded funds (ETFs) are one of the most innovative financial products listed on exchanges. As reflected by the size of the market, they have become popular among both retail and institutional investors. The original ETFs were simple and easy to understand; however, recent products, such as leveraged, inverse, and synthetic ETFs, are more complex and have additional dimensions of risk. The additional risks, complexity, and reduced transparency have resulted in heightened attention by regulators. This chapter aims to increase understanding of how ETFs function in the market and can potentially impact financial stability and market volatility.

We discuss the evolution of ETFs, growing regulatory concerns, and the various responses to these concerns.

We find that concerns related to systemic risk and excess volatility, suitability for retail investors, lack of transparency and liquidity, securities lending and counterparty exposure are being addressed by both market participants and policy makers. There has been a shift toward multiple counterparties, overcollateralization, disclosure of collateral holdings and index holdings.

The analysis contained in this chapter provides an understanding of the role of ETFs in the financial markets and the global economy that should be valuable to market participants, investors, and policy makers.

The purpose of this paper is to examine if the hedging strategy of the firm adds value to the firm, and if so, is the source of the benefit consistent with the hedging theory?

The paper used data from 129 top non-financial Indian companies spanning a period of 2008-2015 and analyzed using the ordinary least squares regression technique.

The study finds that firms engaged in hedging compared to non-hedgers have less volatility in the firm’s value. The use of hedging during the financial crisis is found to be value enhancing for the hedgers. The results also found that some firms do not disclose the notional value of derivatives clearly, which highlights the need of clear regulation for derivative declaration in the annual reports.

Research implications of this study are to gain an insight into the hedging effectiveness in the highly volatile Indian market as compared to developed countries. High volatility in the exchange rate of Indian rupee further makes it one of the most relevant markets to study the effect of hedging on the firm’s value.

Mostly hedging is done purely for risk management, and if managers try to time the market by selective hedging, it can bring a negative impact for the firm. Findings show that managers should manage their hedging strategy based on changing the economic environment and not purely on the firms’ financial value.

To the authors’ best knowledge, this is the first study to extract the dollar value of derivative usage of sample firms and analyze its effectiveness in enhancing firm value in the presence of other financial parameters. This will be an advancement of previous studies, which used hedging as a dummy variable only. Most studies on this topic are carried out in developed countries; there is a limited research on developing markets such as India, and past studies have been more generic one like determinants of hedging and overall derivative scenario.

Theoretical studies suggest that hedging helps firms to reduce their financial distress costs and underinvestment problem especially if the markets are imperfect. Hence hedging, through the use of currency derivatives, is one of the important financial policies for firms. The purpose of this paper is to empirically examine the determinants of derivatives usage by Indian firms using financial disclosures on currency derivatives by non-financial constituents of S&P CNX 500 for 2009.

We manually collect the data on foreign currency derivatives from firms’ annual reports for 2009 and then follow Haushalter’s (2000) approach to examine the determinants of firms’ decision to hedge. A firm can make its hedging decision at once, deciding whether to hedge and how much to hedge. Given the nature of dependent variable that is censored, it is appropriate to use Tobit regression. A firm can also decide its hedging decision in two steps by deciding first on whether to hedge and later how much to hedge. The former is modelled by probit regression and later by conditional regression.

Our empirical evidence suggests that forwards are the main instruments for managing currency risk followed by options and swaps. The objectives, in the order of priority, are reduction in exposure associated with foreign currency receivables, foreign currency long-term loans and foreign currency payables. Firm’s decision to hedge is positively related to size, foreign exchange exposure and leverage, while negatively related to liquidity and investment opportunities. We find evidence of higher derivative usage by firms with both higher currency risk and higher financial distress costs.

The findings of this paper will help corporates, researchers and regulators to understand firms’ motives behind hedging.

This is the first empirical study that examines the determinants of firm’s decision to hedge and the extent of hedging in the context of emerging economies like India.

This article aims to examine the state of risk management in agriculture and power sector of India, evaluate the effectiveness of weather derivatives as alternative risk management tools and basic framework required to implement them.

Applications of traditional risk‐hedging tools and techniques in Indian agricultural and power sectors have proved to be costly, inadequate, and more importantly, a drag on the country's fiscal system. Mostly they offer a hedge against only the price risk. The volume related risk, which is rather more serious and highly weather‐dependent, remains practically unhedged. This study has used existing literature and empirical evidences for analyzing the various issues related to risk management in agriculture and power sector. Traditional derivative strategies have been used to construct weather derivatives contracts with different underlying weather indices.

The article suggests that how an appropriate weather‐based derivative contract system may be a more flexible, economical and sustainable way of managing the volume‐related weather risk in an economy, like India, having predominant agricultural and power sectors.

The article will be of value to all those who have some stakes in agricultural and power sectors of an economy and would like to mange the volume related risk in these sectors.

The global economy has witnessed an exponential increase in cross-border acquisitions (CBAs) by emerging market companies (EMCs), demanding a relook at their internationalization strategy. The purpose of the study is to investigate whether the announcement of CBAs by EMCs creates value for the equity-holders of acquiring firms and identify factors affecting the valuation of acquiring companies.

The paper investigates the announcement impact of CBAs of CNX Nifty 500 Indian and SSE 380 Chinese companies. The event study analysis of 553 Indian and 125 Chinese acquisitions supports the contention that CBAs are indeed a strategic choice of EMCs for value creation.

CBAs generate positive and statistically significant abnormal returns for shareholders of both Indian and Chinese acquirers. The markets, however, differ in terms of their motivations; country-level factors have been observed to exert significant influence on the returns of Indian acquirers. Indian companies experience larger value creation on acquiring firms established in developed, institutionally closer and/or economically distant markets. The findings support the asset-seeking motive of Indian companies.

The research work contributes to the evolving stream of CBAs literature with a focus on the globalization strategies of EMCs. The present study is a modest attempt to lay the foundation for a new theoretical framework (asset-seeking perspective) of overseas acquisitions from emerging economies. The existing studies on emerging economies have emphasized, in isolation, either Indian CBAs or international acquisitions by Chinese firms. Being so, the study is unique and original in the sense that it is a comparative study of India and China.