Currency hedging practices involve the use of all or some of the hedging techniques available for the purpose by investors, hedge funds, portfolio manager and so on. Currency hedging is defined as a set of recognized practices adopted by investors in order to reduce exposure…
In the first instance currency hedging practices have their relative individual significance vis-à-vis non-currency investment opportunities and net returns on such investment vehicles (Zarin, & Zimmerman, 2006). For example investors bank their hopes on relative net returns such as Net Dividend Yield (NDY) generated by stock related investments. Thus potential investors look at how the growth trajectory of Net Asset Value (NAV) would increase in keeping with net returns in relatively less risky spheres of investment.
Secondly the risk factor associated with currency market related investments is proportionately higher when foreign exchange related investments take a plunge due to uncertain government policies. For example if the government concerned allows its own currency to depreciate externally in order to correct a deficit in the trade balance of the balance of payment, investors would be caught on the wrong foot if they happen to bank their hopes constantly on the continuity of government policy (Maskey, 1995).
Thirdly the government may adopt anti-inflationary measures such as higher corporate taxes and expenditure taxes. The net result would be less investment and less borrowing. Currency markets become dormant during such periods of negative policy initiative.
Foreign exchange rates and interest rates are positively related because when interest rates fall the exchange rates also fall because potential foreign investors do not buy the domestic currency concerned for investment when the domestic interest rates fall and as a result the demand for the domestic currency abroad falls thus leading to an unfavorable exchange rate (Larsen, & Resnick, 2000).
Hedge funds, mutual funds, pension funds, commercial banks and other money market players have a tendency to hedge risk by minimizing the degree of exposure to adverse consequences arising from ...
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“If Currency Hedging Is So Beneficial, Do Companies Use All Hedging Essay”, n.d. https://studentshare.net/miscellaneous/386668-if-currency-hedging-is-so-beneficial-do-companies-use-all-hedging-techniques-available.
Secondly, Virtual Books are going to engage in import of certain products from Slovakia which will trigger a cash outflow in Euros. However in this case, the company must use its GBP account to effect the payment. Hence in both cases, Virtual Books has an exposure to potential exchange rate risk.
Now the case specifies that the money is received in Pound Sterling, however Slovakia has adopted the Euro as its currency and we shall assume that it remits Euros which are converted into pounds and then given to Virtual Books. The second stream of cash flows is the import payments which Virtual Books must make to its sister concern in Slovakia.
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.
Similarly, modern people largely depend on banking services including but not limited to check settlement, money transfer, online purchases, and payment of bills and subscriptions. With the emergence of globalization, countries worldwide liberalized their cross border trade laws which in turn promoted the concept of foreign trade.
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 head teacher is responsible for revising and amending the policy as needed, preparing emergency evacuation procedures, ensuring that safety inspections are conducted and to make arrangements for the removal, repair, and replacement of "furniture, fitting or equipment identified as being unsafe by the Health and Safety inspection team".