Search results
Results From The WOW.Com Content Network
Foreign exchange risk is the risk that the exchange rate will change unfavorably before payment is made or received in the currency. For example, if a United States company doing business in Japan is compensated in yen, that company has risk associated with fluctuations in the value of the yen versus the United States dollar. [1]
Currency overlay is a financial trading strategy or method conducted by specialist firms who manage the currency exposures of large clients, typically institutions such as pension funds, endowments and corporate entities. Typically the institution will have a pre-existing exposure to foreign currencies, and will be seeking to:
A common technique to hedge translation risk is called balance-sheet hedging, which involves speculating on the forward market in hopes that a cash profit will be realized to offset a non-cash loss from translation. [24] This requires an equal amount of exposed foreign currency assets and liabilities on the firm's consolidated balance sheet.
A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, [1] many types of over-the-counter and derivative products, and futures contracts.
Proprietary trading (also known as prop trading) occurs when a trader trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments with the firm's own money (instead of using customer funds) to make a profit for itself.
Suppose that is the risk-free interest rate to expiry of the domestic currency and is the foreign currency risk-free interest rate (where domestic currency is the currency in which we obtain the value of the option; the formula also requires that FX rates – both strike and current spot be quoted in terms of "units of domestic currency per ...
Collars, a hedging strategy combining puts and calls, is getting more popular, said bankers. This enables companies to participate in any rise in a currency, unlike forwards where the exchange ...
A cash flow hedge [1] is a hedge of the exposure to the variability of cash flow that: is attributable to a particular risk associated with a recognized asset or liability. Such as all or some future interest payments on variable rate debt or a highly probable forecast transaction and; could affect profit or loss (IAS 39, §86b)