why a organisation should consider hedging net payables or net receivables with currency options rather than: forward contracts, and  future contracts.

Q: Explain the foreign currency swaps and why are they undertaken? Explain the functional currency and…

A: A foreign currency swap, also known as an FX swap, is an agreement between two foreign parties to…

Q: What adjustments might be made due to exchange rate riskand political risk to the domestic cost of…

A: The question is based on the concept of international risk management in cost of capital. An…

Q: What are forward contracts? How can they beused to manage foreign exchange risk?

A: Risk refers to the uncertainty regarding the implications of any activity.

Q: Indirect Intervention How can a central bank use indirect intervention to change the value of a…

A: Central bank can use indirect intervention to change the value of the currency by making necessary…

Q: How does the timing of hedges of (a) foreign currency denominated assets and liabilities, (b)…

A: The three terms are differentiated based on the time when the price or the foreign exchange rate is…

Q: discuss the motives a company may have for engaging in currency and intrest rate swaps

A: A swap is a two-party derivative transaction that includes the exchange of pre-agreed cash flows. It…

Q: Which one of the following is not true regarding a currency board? Currency board holds…

A: Currency board is one of the way to manage the exchange rate and foreign currency and supply of…

Q: State the different types of foreign exchange risk that can be hedged and how foreign currency…

A: Different types of foreign exchange risks: Transaction risk Translation risk Economic risk

Q: Under the fixed exchange rate system, what was the currency against whichall other currency values…

A: Answer: Foreign exchange rate is the currency exchange rate system in which a country’s central bank…

Q: How can the company use currency options to hedge against exchange rate risk?

A: Those companies which have exposure to foreign markets hedge their risk with currency swap forward…

Q: interest rate and currency swap dealer

A: Risk confronting refers to some uncertainty or potential loss chances that will go to happen in…

Q: How do companies report foreign currency derivatives, such as forward contracts and options, on the…

A: Currency derivatives refers to the financial contracts involving two parties, buyer and seller which…

Q: Define foreign currency hedges.

A: Definition:   Hedge: The process through which the risk associated with a particular project, can be…

Q: Would you prefer using negotiable instruments as a form of payment rather than using traditional…

A: A negotiable instrument is an archive that ensures installment of a particular measure of cash to a…

Q: What are some of the transactions or activities that results in the demand of foreign currency

A: In an economy or in a country there are different economic and commercial transactions that lead to…

Q: hedging arrangement and how does it reduce foreign currency risk exposure

A: Foreign currency risk can be defined as the risk of change in the exchange rate of a foreign…

Q: Explain why a country under monetary unions do not have assess to monetary policy

A: A monetary union is group of different nations coming together to accept a common currency to be…

Q: Trade and other payables includes what?

A: The balance sheet is the financial statements of the business that show the assets and liabilities…

Q: explain what economists attribute so much attention to Real Exchange Rates? Provide an answer that…

A: Exchange rates are the rates in which one currency could be exchanged into the currency of another…

Q: What is meant by spot rate in case of foreign currency transaction?

A: Spot rate is the rate at which currencies can be exchanged right away. It is the current market…

Q: does it reduce forei

A: Financial instruments can be regarded as capital bundles that can be traded, or as assets that can…

Q: why a firm should consider hedging net payables and recivables with currency options rather than…

A: Hedging is the process by which risk can be reduced. Options are the derivative instruments that…

Q: What is the value of a unit of domestic currency against foreign currency? A) Parity B) Exchange…

A: The exchange rate is the percentage of foreign currency in domestic currency units, or, in another…

Q: Explain the steps necessary to take advantage of an arbitrage opportunity, which may exist between…

A: When a future yen payment is due,you need to lock in a lower price for the yen.  Currency arbitrage…

Q: Under what conditions can companies use hedge accounting to account for a foreign currency option…

A: Hedge Accounting: Hedge accounting is a process which identifies gains or losses on hedging tools in…

Q: Describe techniques for “hedging” againstlosses from fluctuations in exchange rates.

A: Hedging is the strategies used for reducing the risks and impacts of negative changes or…

Q: What are the differences in accounting for a forward contract used as (a) a cash flow hedge and (b)…

A: a.

Q: What are the advantages or the disadvantages of hedging with currency options as opposed to future…

A: Hedging is used to insulate the investor of the risks of currency fluctuations in an international…

Q: Show the different arguments put forward by the proponents and opponents of currency hedging?

A: Following reasons are given by opponents of hedging: Managers cannot outguess the market.…

Q: Explain what is a hedging arrangement and how does it reduce foreign currency risk exposure?

A: Hedging is an arrangement made to reduce the risk of foriegn exchange. It is a strategy to offset…

Q: Explain fully why and how government intervenes in the foreign exchange market?

A: Foreign exchange intervention comes when a central bank or the government may assess that its…

Q: Direct Intervention How can a central bank use direct intervention to change the value of a…

A: Central bank can make a direct intervention to change the value of a currency. This is achieved by…

Q: Explain the following terms. a. ADR and GDR Depository Receipts b. Bid Rate and Ask rate c. Option…

A: Since you have asked multiple questions, we will solve the first question for you as per policy.…

Q: Explain the need for and problems associated with forecasting foreign  exchange rate

A: An exchange rate forecast indicates the expectation about future value of exchange rates at a future…

Q: How does the various forms of arbitrage remove discrepancies in the pricing of currencies?

A: Arbitrage is generally the common practice which is used by the investor in order to take advantage…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.