Beruflich Dokumente
Kultur Dokumente
PRESENTED BY
SUCHISMITA PATI
ANITA KULLU
&
PRITI RAGINI
CONTENTS
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Foreign Exchange Risk
Foreign exchange risk is the risk that the
value of an asset or liability will change
because of a change in exchange rates.
Because these international obligations span
time, foreign exchange risk can arise.
Sources of Risk
Transaction Exposure
Translation Exposure.
Economic Exposure
Basic risk in forex markets
Currency rates speculation
Risk in market arbitrage
Risk associsted with forex instruments
Determination of forex rates
Economic factors
Political factors
Market psyhcology
Dealers in forex martket
Banks
Central banks
Commercial companies
Investment firms dealing woth forex
Hedge fund as speculators
Non bank foreign exchange companies
Hedging and Speculating
Hedging is the act of offsetting an exposure
to risk.
Speculation generates and exposure to risk.
Long and Short Positions
One is m in a foreign currency if the
value of their foreign-currency-denominated
assets exceeds the value of their foreign-
currency-denominated liabilities.
One is in a foreign currency if the
value of their foreign-currency-denominated
assets is less than the value of their foreign-
currency-denominated liabilities.
Speculation in forex markets
generating risk
Too much exposure to speculation
rather than hedging
Open margins are more and limiting
losses positions are very few
speculation
therotical problems
Emperical problems
Forward Exchange Contracts
Profit Opportunities
Liquidity
Market Trend
Leverage
-20
Risk associated with
currency trading
DEPENDS ON HOW YOU VIEW
RISK .
CURRENCY TRADING AS
USUALLY REFEREED AS
MAKING MONEY ON MONEY IS
A GOOD OPTION IF U ARE
CRACKING FOR RISK
Managing currency risk
hedging
What Is currencyHedging?
Forward Market Hedges:
Objective: To nullify future spot rate
II Situations:
hedging
What Is currencyHedging?
Risk asociated with dollar
trading
The fluctuation in dollar movement
for past two years
PART II
RISK ASSOCIATED WITH
FOREX DERIVATIVES
Forex derivatives an
important risk control
vehicle
So where does the risk lies?
derivative is a a security, like an option
or asset, whose value is subject to
change due to adjustments in the
underlying variables on which is it
based. Forex derivatives typically
include currencies, commodities, bonds
and equities.
There are several types of derivatives:
forwards, futures, and option
MUCH MORE PRONE TO
EXCHANGE RATE
FLUCTUATION
HAD TO BE CONTINOUS
SWITCH BETWEEN LONG AND
SHORT POSITIONS
Risk of forex arbitrage
Arbitrage problems
@
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m
m
400:1 0.25%
200:1 0.50%
100:1 1.00%
50:1 2.00%
m
m $10,000 $10,000
m
50 times 5 times
m
m
$500,000 $50,000
-$4,150 -$415
m 41.5% 4.15%
m
58.5% 95.8
Limiting losses
SAR TECHNIQUE
2 PERCENT LIMIT LOSS
6 PERCENT LIMIT LOSS