International Finance : Forward Contrats, Currency Futures

 International Finance : Forward Contrats, Currency Futures Coursework example
High school
Coursework
Finance & Accounting
Pages 5 (1255 words)
Download 0
Question 1 The biggest threat that arises in the business of imports and exports is about the volatility of the exchange rates. The companies that import goods have the risk of the depreciation of their home currency, for that case they have to pay more to buy thee foreign currency because the ultimate payment has to be made in the foreign currency…

Introduction

In the current scenario, a UK-based corporation namely as Mega Company is exporting a machine to the US-based corporation, Bestway Enterprises for a sum of $500,000. This receipt is going to be received by Mega Corporation after around 3 months. So, Mega Corporation here faces a risk of strengthening the domestic currency which is Pound Sterling against US Dollars. If Pound Sterling appreciates, then there will be less amount of money would be converted in to Pound Sterling from US Dollars. So in order to combat with the exchange rate fluctuations, there are different sorts of strategies available, called as hedging strategies which are used by the corporations to reduce the element of exchange rate volatilities. Some of these strategies are listed as under: Money Market Operations Lead Payments Netting Forward Contracts Future Contracts Options In the following discussion, only Forward Contracts and Future Contracts are discussed in detail: Forwards Contracts Forward Contracts are the ones in which an agreement is made between the parties regarding the future exchange rate. The future exchange rate is set now and the parties to contract will deliver the currencies at the rate determined at the time of contract. ...
Download paper
Not exactly what you need?

Related papers

International Finance Airbus and Boeing
Boeing Company is the largest aerospace company of US. Its operations are in more than 90 countries. The commercial airplane division is the most prominent of all divisions. The company is headquartered in Illinois and known as premier US aircraft manufacturer. Boeing's revenue in the year 2010 was $64.31 billion and first-half revenue in 2011 was $31.45 billion. The company is subject to foreign…
International Finance
For example a company that wishes to go long in forward contract agrees to buy the asset or good at a specific future date i.e. maturity date for a forward price determined at the initiation of the contract. At the maturity the forward price should equal the spot price of the underlying asset because the equilibrium forward price continually changes during the contract period in such a manner that…
International Finance
According to the interest rate parity, the relationship between the forward premium or discount and interest rate differential is given by (Wang, 2009, p.51) The Forward rate and spot rate are in ? and Ih is the interest rate in UK and If is the interest rate in Switzerland. Therefore, if the interest rate parity holds, then the interest rate in Switzerland is lower than interest rate in UK…
International finance
Engaging in International trade is important for the economies of the two or more countries involved; because there is an exchange of foreign currencies, creation of jobs and enhancement of revenues through taxation of the business profits. For multi-national organizations to survive in this import and export trade, they have to employ financial tools in their assessments, and this includes…
International Finance Essay
Interest rate swaps are over the counter (private) transactions; and they are highly liquid financial derivatives that can be used by hedgers to manage both their fixed and floating assets and liabilities. A party that pay fixed rate is referred to as the payer and the receiving party is called the receiver. For example, X agrees to pay fixed rate of interest under specified time intervals to W…
International Finance. Currency Momentum Strategies
2. Summary of the article Using time series data of more than 34 years, the paper has examined some important aspects of FX momentum. The article provides an in-depth analysis of the unsystematic and systematic risks, comparing different momentum strategies, describing the importance of transaction costs, sources for non-standard momentum, over and under reaction and the arbitrage limits. The…
International Bond and Currency Markets
In precise, it also helps in pre-determining the fluctuation of the currency appreciation or depreciation in respect to countries and influenced cross border trade prospects by a substantial extent. It is noteworthy that the volatility of exchange rate, in the short run and also in the long run depends on multiple factors such as the demand and supply prospects in the financial market. Arguably,…