AllFreePapers.com - All Free Papers and Essays for All Students
Search

Hedging Currency Risks

Autor:   •  May 11, 2015  •  Coursework  •  532 Words (3 Pages)  •  822 Views

Page 1 of 3

CW1

HIGH CURRENCY = WEAK

  • Increase interest rate when risk of inflation: economy is high so we need to calm the
  • Economy weak, interest rate low, increase liquidity  

DEFINITIONS

SPOT transaction

 Requires immediate delivery of foreign exchange

FORWARD

Requires delivery of foreign exchange in future date

SWAP

Simultaneous exchange of one foreign currency for another

TYPES OF FOREING EXCHANGES FINANCIAL INSTRUMENTS

Forms of currency quotation used by currency dealers

Financial institutions

Agents conducting exchange transactions

Changing currencies values

  • Differential between currencies:

Long: positive 1.15 dollar for 1 euro. 1.2$=1€ →€ is gaining value. BUYER

Short: negative: debt: 1.15€=1$ SELLER (expect to sell it and buy it again at lower price)

 [pic 1]

If I borrow 1000$ I owe 869€

HEDGING: To be covered against a risk in a changing environment.

FOREX:

BID (prix de vente)

Le cours le plus bas est le prix auquel vous pouvez vendre. C’est le BID c'est-à-dire la meilleure offre disponible pour les clients

PRIX PROPOSE/OFFER

ASK 

(Prix d’ac hat=offered by the market): Le cours le plus haut est le prix auquel vous pouvez acheter. C’est le ASK, c'est-à-dire la meilleure demande disponible pour le vendeur. PRIX DEMANDE/DEMEND

SPREAD

Difference between ask and bid (ask-bid=spread)

BROKER

Intermediary: transfer money from seller to buyer

MARKET MARKER

Knows the market and has the capability to buy and sell themselves on the market. They make the market.

Oligopoly:

If they are alone they have a monopoly and fix the price.

VOLATILITY

Price variation

...

Download as:   txt (3.3 Kb)   pdf (1.3 Mb)   docx (162.2 Kb)  
Continue for 2 more pages »