Forex Market
The Currency of Switzerland
Swiss Franc - CHF
The risk of a company’s financial statements being affected due to changes in exchange rates when consolidating foreign subsidiaries.
Translation Risk
Accelerating payments or receipts to take advantage of favorable exchange rate expectations. Name the Technique
Leading
Provides the right, but not the obligation, to buy or sell currency at a specific rate (strike price) before or on a specified date.
Foreign Exchange Option Contract
A UK company buys a call option to purchase INR at the rate of GBP/INR = 117
Option premium = INR 20
Contract size = GBP 100,000
Spot rate on maturity GBP/INR = 120
Calculate the net gain/loss on the option.
Loss INR 17,00,000, GBP 14167
A Average Daily trading volume of Foreign Exchange Market -2024
7 Trillion
The risk that political or economic instability in a foreign country may affect currency flows or convertibility.
Country Risk
Dividing the invoice amount between two currencies, typically the domestic and foreign currency, to share the FX risk.
Split Currency Invoicing
which technique avoids repeated conversion and reduces transaction cost and FX risk.
Maintaining Foreign Currency Account
An Indian company receives USD 20,000 monthly and makes USD 20,000 monthly payments. Bank charges ₹0.50 per dollar per conversion.
How much can the company save in a year by maintaining a USD foreign currency account?
INR 240000
What will be the result of appreciation of Home Currency for Receive of Commission in Home Currency? ( Profit or Loss)
Loss
A U.S.-based company with a subsidiary in Europe must convert euro-denominated assets and profits into USD for reporting. If the euro depreciates, it reduces the reported income/profit in USD. The transaction is associated with which type of Risk
Translation Risk
Clauses in contracts that allow prices to adjust based on currency fluctuations beyond a certain threshold.
Price Adjustment Clause
An agreement between two parties to exchange principal and interest payments in different currencies.
Currency Swap
Company A (India) has:
Receivable from UK: £150,000
Payable to UK: £90,000
If 1 GBP = ₹105, calculate net exposure in INR
INR 63,00,000
Currency of China
Chinese Yuan Renminbi - CNY
An Indian exporter of garments receives revenue in USD. If the USD weakens against the INR, which type of economic risk comes into the picture
Direct Economic Risk
The Indian Importer has contracted to pay Maximum price of USD1 as INR 85. Which type of technique is this.
Risk Sharing Agreement
Which external technique of managing foreign exchange is extension of synthetic forward
Money Market Hedge
An Indian firm needs to pay $70,000 in 2 months.
Spot rate: ₹83/USD
Forward rate: ₹84/USD
If it doesn’t hedge, and spot moves to ₹87, what’s the benefit of hedging?
Saving of INR 210000
Who Intervene in the forex market to manage inflation, trade competitiveness, or capital flows of the country.
Central Bank
An Indian company competing with Chinese imports may lose market share if the Chinese yuan weakens against the rupee, making Chinese goods cheaper. Which type of Economic Risk is Associated with this Transaction
Indirect Economic Risk
Which type of internal technique of managing foreign exchange risk can eliminate foreign exchange risk completely ?
Domestic Currency Invoicing
Which external technique uses mostly standardized contracts
Future Foreign Exchange Contracts
A US company has a subsidiary in Europe with assets of €7 million and liabilities of €3 million. If the EUR/USD rate changes from 1.20 to 1.10, calculate the translation exposure loss.
USD 0.4 million