Advantages And Disadvantages Of Foreign Exchange Markets

1. Options versus Futures. Explain the difference between foreign currency options and futures and when either might be most appropriately used. An option is a contract giving the buyer the right but not the obligation to buy or sell a given amount of foreign exchange at a fixed price for a specified time period. A future is an exchange-traded contract calling for future delivery of a standard amount of foreign currency at a fixed time, place, and price. The essence of the difference is that an option leaves the buyer with the choice of exercising or not exercising.

The Balance of Payments in India mainly relies on services exports, remittances and the course capital flows, both foreign direct investments (FDI) and FII. It is very essential that all market participants, such as banks and other intermediaries be provided with the wherewithal so that they can undertake a risk management in a way that is scientific. One of the ways to access domestic, foreign exchange markets is to hedge on the underlying foreign exchange exposures. In addition, the facilities that are available as the booking of forward contracts were included in the domestic forex market in order to evolve and acquire volumes and depth (Sumanth, 2012). Some of the newer hedging instruments have put in place swaps and options in the

An emerging market is a country that has some characteristics of a developed market, but does not meet standards to be a developed market. This includes countries that may be developed markets in the future or were in the past.

Foreign trade can be defined as the import and export of goods, resources and services from nation to nation. There is a scarce amount of countries that are self sufficient, leaving most countries to rely on other nations. Foreign trade includes many agreements made by similar nations looking for a similar outcome. These types of agreements can be in the form of laws which help regulate the the trade. The amount of trade made in a country can be measured by the growth domestic product (GDP). The GDP is the absolute value of all things produced by all people and companies (CITE). There are advantages and disadvantages to the transporting of trade. Some benefits of foreign trade includes providing jobs, improving quality of life and empowering women around

There are lots of methods to solve the changes in foreign currency and interest rates issue, however, derivative financial instruments are the major tunes Nike enterprise has used to tackle this issue. Despite the fact that this approach does not wipe out comprehensively the risk of foreign exchange, Nike enterprise still utilize it to minimize or delay the negative consequences. Specifically, the derivative financial instruments comprise embedded derivatives, interest rate swap, and foreign exchange forwards and options contracts (Nike annual report, 2014).

The presentation was scheduled for the first week of December 1990. Mr. Pross outlined the use of various derivatives, noting that they differed widely in their ability to reduce risk. If the company was, say, placing a large bid to buy a building abroad, one might prefer to use foreign currency options to hedge the currency risk in the event the deal fell through. He argued, however, that foreign currency futures were best suited to hedge the fluctuations in revenues arising from currency movements. Mr. Pross proposed a plan to hedge currency risk using futures which

Exchange rates play a pivotal role in the relationships between individual economies and the global economy. Almost all financial flows are processed through the exchange rate, as a result the movements and fluctuations of the exchange have a significant impact on international competitiveness, trade flows, investment decisions and many other factors within the economy. Due to the increasing globalisation of the world economy, trade and financial flows are becoming more accessible

During the second half of 1997, currencies and stock market prices plunged in value across Southeast Asia, beginning in

Foreign exchange rates are best described as simply the price of a country’s money expressed in another country’s money. In simple words, it is the rate at which a currency can be swapped for another. An example of determining foreign exchange rates is by substituting goods for currencies. Another example is the yuan-dollar exchange will depend on how well the demand and supply moves. When the demand for dollars in China climbs and supply does not go up correspondingly, each dollar will cost more yuan to buy. (Colander, 2010)

The starting point of any foreign exchange risk management plan is to identify the exchange exposure faced. In controlling the foreign exchange risk, currency options have attained acceptance as very helpful tools due to their exclusive nature. They are very critical and convey a much wider range of hedging alternatives. Call options provide the right to the buyer to purchase the

In theory, it has been proved that futures and swaps can be equal to the combination of forwards. (Hull J C, 1997)Generally, a foreign exchange settlement contract will be signed by banks and their customers, which stipulates the type of foreign currency to be used, the sum, the exchange rates and duration. On the due date when income or expenditure of foreign exchange occurs, currency exchange settlement will be operated in accordance with the contract.

Central bank of any country takes decision on which type of exchange rate to use in their country. When central bank takes decision that not to change value of their currency with respect to foreign currency then it is termed as fixed rate. Different variants are available in fixed rate as,

One thing which has been introduced with the emergence of currency derivatives, a participant with a foreign exchange exposure can find easy access to information over rates and future market expectations for the currencies traded. Benefits of trading in the currency futures segment are immense - from accessibility to price transparency and standardization, which in the case of over-the-counter trade is entirely different. As far as accessibility is concerned, currency derivatives offer an online electronic trading platform as opposed to the interbank forex market. In terms of price transparency, an online trading platform makes sure of uniform and real-time price access to all market participants, while in the OTC market one has to rely upon the rates offered by the bank. In

Natural resources which are non-renewable, such as oil, can be used up within a short period of time leaving little or nothing for the citizen of the country to use. With this, the economy of such country will downfall and it will lead to diversification of export products. For example, a country that is well known for exporting crude oil might lose it's status after using up all of it's crude oil and might resort to exporting other products such as forest products and so on which has it's competitors already, so it's just like starting all over again.

Great Eastern Toys is a company in Hong Kong that exports a huge percent of its total sales to the North American and European markets and hence is exposed to currency risk. Previously, the company was occupied with expanding their business and the company 's management had never given much attention to currency risk until their recent meeting with their banker. The banker pointed out that the depreciation of the European currencies during the previous two years had resulted in a substantial loss of income. The company 's management was indeed convinced that they should begin to devote more time and manage their currency position. In this report, we are going to explore the different options for Great Eastern Toys to hedge