In order to deal with the problem of changing market prices, the trader needs to continually evaluate and analyze the functions of the market and the goals of the business enterprise (Stanley 1998). In addition, the business must be in a position to put in place new market rules and to be monitoring the trade trends and its development. In most of the world states, trade has emerged as one of the key sectors of the economy and most of her citizens depend on the trade for their source of living. The growth of the energy markets and the strategies of the energy providers have been the driving force of these trade improvements over the recent years. A number of commodities in the energy sector such as power, gas, carbon dioxide and even the weather have found their way into the trade market in societies. This has led to the improvement of the use of the scarce resources and increased complex organizations, process interfaces and the system infrastructures. The increased demand for data quality has led to most organizations to adopt the need for risk management that reduces the operational costs during the production process and the actual trading exercise (Dell’Ariccia & Marquez 2010). The international trade is finding its way in society and people have actively been involved in the same and this has led to the emergence of new market models such as market coupling are being discussed and this has made it easier for cross-border trading. On the other hand, the international trade implies that different rules and procedures must be followed and this has led to a change in the trading system that bring on board a number of challenges that require adaptation into existing risk management mechanisms. Exchange Traded Currency Options Foreign exchange traded currency options give a company or an individual the right to exchange the currency of their country into another currency of another country at pre-agreed exchange rate at a given time in the future. This is the world’s market option although most of the currency trade is done in private and hence it is not possible to determine exactly how large the market is. This form of trade is regulated however in a minimized way and most of the transactions are over the counter. With a few exceptions that are traded on exchanges such as the International Securities Exchange, the Philadelphia Stock Exchange, or the Chicago Mercantile Exchange that has options for future contracts (Dong-Hyun & Gao 2003). In the past, the universally accepted currency option was valued by the Bank for International Settlements. For any business enterprise that wish to grow in the international market, there is the need to value the Foreign Exchange factor. Most of the organizations often do not take this risk factor into consideration during their contracts hence the delayed growth, and success in the international market. The international market often fluctuates in value and a given asset or commodity valued at a given price at a present time might be valued at a higher or lower price in the future due to the exchange rate factor (Manzur, Hoque, & Poitras 2010). In the currency option therefore, the product that is to be traded called a derivative is based on a universally acceptable instrument that
Currency Options and Their Role in International Trade Course Number: Date Due Introduction Any business enterprise can benefit greatly through proper management of their risk. Due to the increased competition in the international market, the need to plan and realize an effective business strategy that aims at coming with efficient risk management criterion is vital…
Multinational corporations who have denominations in different currencies are largely exposed to foreign exchange risk and they need to eliminate the impact of severe losses due to adverse movements in foreign exchange rates. Various other forms of managing currency risk have been compared with currency futures to determine that which form is the most credible one.
Expiry date and price of the exercise are highly taken into account. The year 1982 saw the initiation of exchange traded foreign exchange options. Specifically, London, Chicago and Philadelphia were the first places where currency options were traded. Futures and options basically characterized the transactions undertaken in the currency options market.
On the other hand, some economists argue that Britain’s Chancellor, George Osborne gambled by naming Mark Carney as the next person to be at the helm of Bank of England from 1st July 2013. They believe that the modern central banker is not experienced in the field that he is expected to lead.
These companies engages in international trade through foreign exchange forward contracts and options and cross currency swaps to hedge various currency exposures. These exposures primarily include assets, liabilities and bonds denominated in foreign currency.
In particular, an updated version of their dichotomous trade policy openness indicator does not enter significantly in growth regressions for the 1990s (Arak and Martin, 2005). Third, and most importantly, there is new evidence on the time paths of economic growth, physical capital investment and openness around episodes of trade policy liberalization.
This literature review would examine the theoretical and conceptual constructs of currency hedging strategies and their relevance or irrelevance to all firms in a highly competitive and risk prone money market.
In the first instance currency hedging practices have their relative individual significance vis--vis non-currency investment opportunities and net returns on such investment vehicles (Zarin, & Zimmerman, 2006).
The report International Trade Operations has been designed and formulated for ABC Ltd, which is a medium-sized company engaged in manufacturing electronic goods in UK and exporting them to both developed and developing countries. The company’s major exporters are Malaysia, Canada, China and Algeria etc.
Moreover it also discusses some of the risk that is involved in the normal international trade.
While discussing the desirability of the counter trade, it provides a complete analysis of different research that has been conducted in different part of the world and compare and evaluates the results.
Under financial markets, four broader categories highly dominate which are bond, stocks, foreign exchange, and derivative markets. The following discussion briefly describes aforementioned types of financial markets.
Bonds are the debt instruments
In the past as well as at present, China and Latin American nations have engaged in trade practices that have benefited both regions. The two sides have increasingly expanded their exchanges to include comprehensive multidimensional experiences that are characterised
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