why a firm should consider hedging net payables and recivables with currency options rather than forward contracts or future contracts

Q: Which of the following provides the link between interest rate parity and unbiased forward rates? A.…

A: Uncovered Interest rate Parity As per uncovered interest rate parity theory the difference in…

Q: Explain carefully how swaps allow firms and banks to separate different types of fixed income risk.…

A: An interest rate swap is a contract between two parties in which one stream of interest payments is…

Q: How has financial market integration affected interest rate movements?

A: Financial market integration is associated with the financial market being closely linked with…

Q: What is foreign exchange FX risk?

A: Foreign exchange risk: It alludes to the misfortunes, due to currency or money changes, that a…

Q: What differences between the daily market valuation of a traditional security and the valuation…

A: There is need of proper valuation of security there many methods of valuation.

Q: In international finance, can you explain the risk involve for both importer and exporter and…

A: International finance is referred as the study of the monetary interactions, which used to transpire…

Q: What is the difference (Who can invest?) between Money Market, Bond Market, Equity Market, Foreign…

A: The money market is the part of the financial market that invests in short-term debt with low risk…

Q: How can the effect of below-market-rate loans on value be determined using investor criteria?

A: Below market interest loan is the loan on which interest rate is charged less than the current…

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: What is the difference (How will the investment earn?) between Money Market, Bond Market, Equity…

A: Financial markets refer broadly to any marketplace where the trading of securities occurs, including…

Q: Firms typically hedge their foreign exchange exposure to: A. Speculate on currency movements. B.…

A: C. Reduce the uncertainty of future cash flows. Firms frequently do business with other countries,…

Q: Discuss the key differences between the operation of a currency forward market and a  futures…

A: Foreign exchange, also known as Forex or FX, is the process of converting one currency into another…

Q: Which hedging strategy uses an exchange rate agreed to today for future delivery of currency to…

A: Hedging is a financial management strategy help to setoff the risk of making an investment in…

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: age of over-the-counter products such as swaps or forwards contracts, relative to exchange-traded…

A: Exchanged traded products are traded on stock exchanges where as over the counter products are…

Q: Which of the following is not a main core function of the financial system? a. Provide a payments…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Illustrate how to synthesize a forward hedging strategy by using only the money markets, in order to…

A: The idea of forward hedging is to lock-in the price (or exchange rate) today for a future foreign…

Q: How is credit risk managed in case of foreign exchange futures contracts? Discuss with the use of an…

A: Credit risk management in foreign exchange (forex) futures contracts is a crucial aspect of…

Q: Why is writing deep-in-the-money currency options tantamount to short-term financing?

A: A deep in the money option is an options contract where the strike price of the option is…

Q: What is the difference (term of investment) between Money Market, Bond Market, Equity Market,…

A: Financial markets encompass any marketplace where securities are traded, such as the stock market,…

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 to analysis the Liquidity in Finacial Market analysis?

A: Liquidity is the availability of the current assets to fulfill the current liabilities of the…

Q: Answer true or false to the following statement and explain: “Investors engage in forward exchange…

A: The exchanging of one currency for another is known as Foreign Exchange (forex or FX). For example,…

Q: =) FALSE?

A: The exchange rate refers to the value of the one currency converted into the other currency. The…

Q: What are the criteria for selecting between hedging or diversification to manage risk in the foreign…

A: Hedging This is  said to be the risk management strategy which is used by  individuals and companies…

Q: Which currency regime plays role of counter inflation anchor: Select one alternative: Free…

A: Solution Step (1) Inflation Anchor Conventional wisdom is that a financial organization can anchor…

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: a)  Why is financial leverage understood to be a fair-weather friend?

A: “Since you have asked multiple questions, we will solve the one question for you. If you want any…

Q: differences between translation risk and transaction risk

A: Translation Risk  Translation risk is defined as the exchange rate risk associated with converting…

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: Which of the following refers to exposure netting?  1. It is a strategy based on adjustments of the…

A: exposure netting is defined as a method of hedging transaction risk by offsetting exposure in one…

Q: What is the difference bet

A: There are many types of traders in the market and each trader has their own objective in the market…

Q: What is an arbitrage opportunity? What types of arbitrage strategies are used by foreign exchange…

A: An investor can profit from price differences of a security or asset between several exchanges or…

Q: What kind of interest rate swap would a commercial bank with a negative re-pricing gap (that is,…

A: We have to find out an appropriate kind of interest rate swap for a commercial bank with a negative…

Q: What types of risks are interest rate andexchange rate swaps designed to mitigate?Why might one…

A: Introduction: An interest rate swap is a form of derivative contract whereby two counterparties…

Q: Critically evaluate the argument that fixed exchange rate regime is better than flexible exchange…

A: Fixed exchange regime refers to that regime in which exchange rate in a country remains fixed…

Q: Why might a company become involved in an interestrate swap contract to receive fixed interest…

A: Interest rate swap contract: It is an agreement between the two parties who are in contract, where…

Q: Question No. 2:  Write short notes on the following:                     Eurobond versus Euro…

A: Bond is defined as the fixed income instrument as the bonds used to make the payment for the fixed…

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.