Volatility is an unavoidable feature of all financial markets and heightened volatility in the forex market that we witness today is neither unprecedented nor unexpected. All economic agents with currency risk will have to frame a conscious risk management policy to cope with the impact of the volatility on their cost, revenue and profit.
Even as the Reserve Bank strives to maintain orderly conditions in the forex market, certain behavioral issues that tend to accentuate volatility have to be understood by all market participants and factored into their response and risk management strategy.