Day: October 7, 2020

The forward rate of a currency for a specified future date is determined by the interaction of demand for the contract (forward purchases) versus the supply (forward sales). Forward rates are quoted for some widely traded currencies (just below the Read More …

Arbitrage can be loosely defined as capitalizing on a discrepancy in quoted prices by making a riskless profit. In many cases, the strategy does not require an investment of funds to be tied up for a length of time and Read More …

The money market can be used to hedge against exchange rate fluctuations by borrowing an amount in foreign currency equal to the value of, say, invoiced exported goods, exchanging it for the domestic currency at the spot rate, and then Read More …

In finance, the binomial options pricing model(BOPM) provides a generalizable numerical method for the valuation of options. The binomial model was first proposed by Cox, Ross and Rubinstein in 1979. Essentially, the model uses a “discrete-time” (lattice based) model of Read More …

Here we shall consider the methods of using derivatives -forwards, futures and options contracts and money market hedges. Forward contracts Forward foreign exchange contracts are a binding agreement between two parties to exchange an agreed amount of currency on a Read More …

There are four main internal means of reducing exchange rate exposure. These are based on methods of processing transactions and payments, and of offsetting assets and liabilities in different currencies. a)Currency invoicing The first approach is simply to invoice foreign Read More …

In addition to normal business and financial risk, companies face extra risks connected with trading and investing overseas. These risks can be separated into political risk and foreign exchange risk. Political or Country Risk Political risk (also known as country Read More …

An exchange rate is the rate at which a unit of one currency can be exchanged for another- for any currency there is an exchange rate for each currency it can be traded with. Exchange Rate Concepts There are three Read More …