Carry Trades And The Financial Crisis

Page 3: Introduction to the Financial System Page 7: Commercial Banks Page 12: The Share Market and the Corporation Page 15: Corporations Issuing Equity into the Share Market Page 19: Investors in the Share Market Page 24: Short-term Debt Page 28: Medium- to Long-term Debt Page 32: Interest Rate Determination and Forecasting Page 37: The Foreign Exchange Market Page 40: Factors that Influence the Exchange Rate Page 42: Futures Contracts and Forward Rate Agreements Page 47: Options

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

B the permanent movement of funds from one currency to another in the hopes of profiting from long. term investment in a particular country.

Currency exchange rates can be categorised as floating, in which case they constantly change based on a number of factors, or they can subsequently be fixed to another currency, where they still float, but they additionally move in conjunction with the currency to which they are pegged. Floating rates are a reflection of market movement, demonstrating the principles of both demand and supply, as well as limit imbalances in the international financial system. Fixed exchange rates are predominantly used by developing countries as they are preferred for their greater stability. They grant further control to central banks to set currency values, and are often used to evade market abuse. (MacEachern, A. 2008; Simmons, P.

Currency exposures assume many forms: they can be assets or liabilities; current or committed; contracted or merely forecast; they can be for trade, investment or balance sheet purposes. Cases of currency exposure can emerge at any point along the value chain, with various repercussions. Each requires a transfer of funds, and for each the rate of exchange is uncertain. Examples of different types of currency exposures are presented below.

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 Panic of 1873 was a financial crisis that began a depression in Europe and North America that lasted from 1873 until 1879. Throughout the 1870s there were ups and downs on a mass level in the economy from the stock market crashing. The stock market crashed from investors investing too much in the railroads with borrowed money after the Civil War and panicking once the bank Jay Cooke and Companies credit became close to worthless. Investors tried to get their money out of the market by trading their shares and going to the bank to get their money out, but there were mass amounts of investors wanting their money from the bank Jay Cooke and Company along with other banks; everyone could not get their money due to the

The financial crisis of 2008 has been described as the worst financial crisis the world has seen since the great depression, but there are now murmurings of the potential for an even greater financial crisis, a currency crisis, caused by the demise of the US Dollar. The Dollar has been the reserve currency of the world since it took over from the Pound at the end of world war two, but we examine if it is about to crash spectacularly?

Off course, if we think about only these numbers it seemed that TKC is receiving more than it pays but this not exactly true since TKC paid for the bonds more than it is going to get after the 38 years (premium bond = coupon>YTM plus TKC’ initial investment of $21 million.

In the similar time period Japanese Yen has been in the third position with a turnover position of 20.8% in the year 2005. The overall financial market currency structure has seen a decline in the turnover position of the US Dollar to 85% from a strong position of 88%. Similarly a decline has been in the position of the Japanese Yen to 17.2% from an acceptable turnover position of 20.8%. While considering the trend of these two currencies during the period starting from 2007 and ending at 2010, it is to be noted that minute changes were seen in the two different currencies with regards to their share in foreign currency market. The US Dollar witnessed a continued fall to 84.9% from its previous 85.6% however, the Japanese Yen saw a rise from its previous position of 17.2% to an increase of1.8% that is 19%. During the same time period the US dollar and Japanese Yen were the second most traded paired currencies and was traded at around 14% of the overall foreign currency market second to the US Dollar and Euro pair. Conclusion The foreign exchange market has seen considerable changes owing to the global financial crisis. It is to be seen how different factors like economy and global politics further impact strong currencies like the US Dollar and other competing currencies such as the Japanese Yen.

AIFS is an American based company that offers travel abroad and exchange study services to both college and high school students. While AIFS’s revenues are denominated in American Dollars (USD), most of their costs are in foreign currencies as Euros (EUR) and British Pounds (GBP). Consequently, foreign exchange hedging has a crucial importance for the company because it provides protection against different types of risk that derive from its activity.

This report is created with a discussion over several important international finance topics for instance, interest-rate parity, currency risk management, regarding description on Carrefour S.A. financing policies as well as hedging strategy. Additionally, we also discussed on which currency Carrefour should issue its 10-year, 750 million euro, annual coupon bond, its foreign currency risk exposure and a possible hedging decision in dealing with any or all of the identified risks.

selected currencies is one of the approaches to make money. For the past many years,

Among the most fundamental risks, associated with exchange-traded derivatives, is variable degree of risk. According to Ernst, Koziol, & Schweizer (2011), the transactions in

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