Summary:

This paper discuses the IT industry in India and exchange rate risks. Starting with the history of the Indian IT Industry, the paper talks about change in government policies and how it impacted the growth of the industry. After devaluation of the Indian currency in 1991, the Indian government changed to a liberal policy and it helped the growth of the IT industry. The government also established Special Economic Zones to boost the growth of the Indian IT Industry.
India does not have a high domestic IT market, so most of the growth involves export to the US and European countries. Indian currency is volatile and businesses are exposed to exchange rate risks. This paper discusses different hedging techniques and finds out why options and futures are the best options for the Indian IT Industry.
China is a fast growing economy and is challenging the Indian IT industry because of advantages similar to India. This paper discusses advantages and disadvantages with both the economies. It discusses options such as joint ventures and establishing development centers in China for Indian IT companies to penetrate into the Chinese market.
The third section of the paper deals with differences in exchange rate systems between India and China. China follows a pegged system while India has a managed float system. This section discusses the differences and impact of exchange rates on international trade.

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