Decoding Finance
Meaning Netting is an internal risk hedging tool to manage the forex risk. A company may have multiple forex exposure from different operations in the form of receivable or payable. By using this process the company can offset these exposures…
Meaning of Money Market Hedge Money market hedge is one of the tools of risk management related to foreign exchange risk. Under this, forex risk can be hedged using the money market. Money market consists of negotiable instruments such as…
Understanding of Foreign Exchange Risk Foreign Exchange Risk means risk of losses that an organization or government may incur due to fluctuation in exchange rate. Foreign exchange risk arises when a company or country engages in financial transactions denominated in…
Meaning The term foreign exchange exposure is relevant for the companies involved in import or export of goods or services, or having transactions denominated in foreign currency. If a company has foreign exchange exposure then there is always a risk…
Meaning Under Currency future contract two parties are agreed to buy or sell an underlying currency at future date on agreed upon price. This derivative contract provides both parties a right and an obligation. Future contracts are quoted on stock…
Meaning Currency Call Option is a contract between two parties under which option buyer gets the right to buy the underlying currency within a specified period. For buying the ‘right’, call option buyer will pay an amount to call option…
Meaning Currency Put Option is a contract between two parties under which option buyer gets the right to sell the underlying currency at pre-determined price (Strike Price) within a specified period. For buying the right put option buyer will pay…
Meaning of Currency Option Currency Option is a contract between two parties that provides the buyer the right to buy or sell specified quantity of underlying currency on or before a specific date at a specified price. In this derivative…
Extension or Rollover of Forward Contract Some times may be due to some unforeseen reasons, payment or receipt of foreign currency is required to be deferred. In such cases banks may be requested to extend the date of forward contract.…
Concept of Cancellation of Forward Contract If due to some uncertain events or reasons, if forward contract can not be executed then it is cancelled. There are so many events that may cause cancellation of forward contract and one of…