forex management
12
FOREIGN EXCHANGE EXPOSURE AND RISK
MANAGEMENT
LEARNING OBJECTIVES
1.
Introduction
2.
Foreign Exchange Market
3.
Market participants
4.
Nostro, Vostro and Loro Accounts
5.
Exchange Rate Determination
(a) The Spot Market
(b) The Forward Market
6
Exchange Rate Quotation
6.1
6.2
6.3
6.4
American Term and European Term
Direct and Indirect Quote
Bid, Offer and Spread
Cross Rates
7. Exchange Rate Forecasting
7.1 Techniques of Exchange Rate Forecasting
(a) Technical Forecasting
(b) Fundamental Forecasting
(c) Market-Based Forecasting
(d) Mixed Forecasting
8.
Exchange Rate Theories
8.1 Interest Rate Parity (IRP)
8.2 Purchasing Power Parity (PPP)
8.3 International Fisher Effect (IFE)
© The Institute of Chartered Accountants of India
12.2
Strategic Financial Management
8.4 Comparison of PPP, IRP and IFE Theories
9.
Risk Management
10. Risk Considerations
10.1 Financial Risk
10.2 Business Risk
10.3 Credit or Default Risk
10.4 Country Risk
10.5 Interest Rate Risk
10.6 Political Risk
10.7 Market Risk
10.8 Foreign Exchange Risk
11. Foreign Exchange Exposure
12. Types of Exposures
12.1 Transaction Exposure
12.2 Translation Exposure
12.3 Economic Exposure
13. Techniques for Managing Exposure
13.1 Derivatives
(a) Forwards-Based Derivatives
(i) The Forward Contract
(ii) Swaps
(iii) Futures Contracts
(b) Options
13.2 Money Market Hedge
13.3 Forward Market Hedge
13.4 Netting
13.5 Matching
13.6 Leading and Lagging
13.7 Price Variation
13.8 Invoicing in Foreign Currency
13.9 Asset and Liability Management
13.10 Arbitrage
14. Strategies for Exposure Management
14.1 Low Risk: Low Reward
© The Institute of Chartered Accountants of India
Foreign Exchange Exposure and Risk Management
12.3
14.2 Low Risk: Reasonable Reward
14.3 High Risk: Low Reward
14.4 High Risk: High Reward
15. Hedging Currency Risk
15.1 Currency Exchange Risk
(a) A Spot Transaction
(b)
FOREIGN EXCHANGE EXPOSURE AND RISK
MANAGEMENT
LEARNING OBJECTIVES
1.
Introduction
2.
Foreign Exchange Market
3.
Market participants
4.
Nostro, Vostro and Loro Accounts
5.
Exchange Rate Determination
(a) The Spot Market
(b) The Forward Market
6
Exchange Rate Quotation
6.1
6.2
6.3
6.4
American Term and European Term
Direct and Indirect Quote
Bid, Offer and Spread
Cross Rates
7. Exchange Rate Forecasting
7.1 Techniques of Exchange Rate Forecasting
(a) Technical Forecasting
(b) Fundamental Forecasting
(c) Market-Based Forecasting
(d) Mixed Forecasting
8.
Exchange Rate Theories
8.1 Interest Rate Parity (IRP)
8.2 Purchasing Power Parity (PPP)
8.3 International Fisher Effect (IFE)
© The Institute of Chartered Accountants of India
12.2
Strategic Financial Management
8.4 Comparison of PPP, IRP and IFE Theories
9.
Risk Management
10. Risk Considerations
10.1 Financial Risk
10.2 Business Risk
10.3 Credit or Default Risk
10.4 Country Risk
10.5 Interest Rate Risk
10.6 Political Risk
10.7 Market Risk
10.8 Foreign Exchange Risk
11. Foreign Exchange Exposure
12. Types of Exposures
12.1 Transaction Exposure
12.2 Translation Exposure
12.3 Economic Exposure
13. Techniques for Managing Exposure
13.1 Derivatives
(a) Forwards-Based Derivatives
(i) The Forward Contract
(ii) Swaps
(iii) Futures Contracts
(b) Options
13.2 Money Market Hedge
13.3 Forward Market Hedge
13.4 Netting
13.5 Matching
13.6 Leading and Lagging
13.7 Price Variation
13.8 Invoicing in Foreign Currency
13.9 Asset and Liability Management
13.10 Arbitrage
14. Strategies for Exposure Management
14.1 Low Risk: Low Reward
© The Institute of Chartered Accountants of India
Foreign Exchange Exposure and Risk Management
12.3
14.2 Low Risk: Reasonable Reward
14.3 High Risk: Low Reward
14.4 High Risk: High Reward
15. Hedging Currency Risk
15.1 Currency Exchange Risk
(a) A Spot Transaction
(b)