ABSTRACT Currency risk arises because of uncertainty in exchange rates. This Foreign exchange savings are invested in different or multi currency and different market portfolios. With consultation from Ministry of Finance, decisions are taken regarding the long-term application of derivatives or exposures on different currencies depending upon the currency movements and other considerations in the medium- and long term. Indian companies dealing with global companies often transact in different foreign currencies. To prevent companies from fluctuations rising in forex market, tools such as financial derivatives are often used to hedge the risk. Exchange rate risk arises if a firm has receivables, payables, assets or liabilities denominated in foreign currency, the regulations of the country require conversion of the same into domestic currency for operations or reporting, and the exchange rate is highly volatile. The risk is more especially in cases where the receivables and payables are contractually fixed in foreign currency. Today, globalization of world markets exposes those firms also to exchange rate risk that do not have any foreign currency denominated transactions. Hence foreign exchange rate risk is unavoidable.