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Foreign Exchange Futures Rates – Foreign Exchange Risks
Foreign Exchange Futures Rates
The exchange rate expresses the parity between two types of coins, or in other words, exchange rate expresses the local currency price relative to the price to foreign currencies. The level of this course is a strong economic policy tool used by politic factors, in order to establish a balance between exports and imports size, and consequently eliminating or at least temper the size of the deficit of the trade balance of payments.
It must be made a clear distinction between the exchange rate in sight, or spot, and the forward foreign exchange or forward. Spot rate is the rate at which a currency can be exchanged with another currency at a time, while forward exchange is a rate agreed by both parties at which a currency can be exchanged with another currency at a future date. Foreign Exchange Futures Rates
The origin of the foreign exchange risk lasts in foreign banking operations: external liabilities and assets. These elements are integrated into the company bank balance converted into national currency on the day. This course may involve changes in gains or losses beyond the efforts of the bank or its management quality. Foreign exchange risk and interest rate risk are overlapping because the buying or the selling of currencies gives rise to the exchange risk, and placing the resulting capital raises interest rate risk. For example, buying currency for a customer gives rise to currency risk. Placing this sum by the granting of a credit in foreign currency generates interest rate variation risk.
Protection, limiting or hedging foreign exchange risk, involve a diversification of the of both assets and liabilities in foreign currency and the use of risk reducing techniques. Derivatives transactions as forwards, futures, options, collar, swap and FRA are used both as tools for hedging interest rate risk and exchange risk and risk transfer operations to their global management. Foreign Exchange Futures Rates
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Mar 30, 2009 Weekly Forex Outlook
