This study examines the linkage between firms' risk exposure and Foreign Currency Borrowing (FCB) within a managed float currency regime. A managed float regime offers an intriguing setting, as it can potentially induce a moral hazard problem. A moral hazard problem created by the managed float regime encourages firms to recklessly use FCB which could impact their risk exposure. We analyse the data of Indian firms for the period from 2012 to 2019. We measure the firms' risk exposure by modelling it as both default and equity risks. Our findings show that firms with FCB-heavy balance sheets are relatively more exposed to both default and equity risks as compared to firms with FCB-low balance sheets. The findings of this study showcase that a managed float regime has induced a moral hazard problem in India making FCB a transmission vehicle through which currency risk is transmitted to the economy. Based on our investigation, we recommend an exchange rate policy where the currency exchange rate is more market-driven. Such a policy can simultaneously help in developing of a well-functioning currency derivatives market in India and mitigate the financial stability concerns in the economy.