3-) What are the advantages of a currency options contract as a hedging tool compared with the forward contract?

Q: What is the concern for credit risk in anover the counter market versus the credit risk in an…

A: Over-the-counter (OTC) exchange is a decentralized form of the market. In this, two parties trade…

Q: Advantages of currency futures contracts relative to forward contracts include _     a. Higher…

A: A futures contract is a legal contract to purchase or sell an underlying asset or security at a…

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: What are the pros and cons of using options traded in the over-the-counter market and in an exchange…

A: Options can be defined as those contracts which allow an investor to purchase or sell a security on…

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: 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: 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: Which of the following statement is INCORRECT?

A: Option contract is a contractual agreement between the buyer and the seller. In the option…

Q: What are the differences between an exchange and an over-the counter market?

A: Over the counter market is customized market. Exchange is standardized.

Q: How can we obtain a pay-domestic-floating, receive-foreign-fixed currency swap by using a…

A: A currency swap is the exchange of interest (and occasionally principal) in one currency for the…

Q: Define spot, forward, and swap transactions in the foreign exchange market and give an example of…

A: The foreign exchange market (also known as the Forex or FX market) is a decentralized global market…

Q: How does the interest rate parity condition Maintain equilibrium in the foreign exchange Market?

A: The question asks how the interest rate parity (IRP) condition helps keep the foreign exchange…

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: Foreign exchange risks   a. Occur when cash flows are affected by currency exchange rates   b.…

A: Foriegn exchange risks are risks that arise due to fluctuation in the exchange rate of the currency.…

Q: When is a forward contract preferred over an option contract ?

A: Forward contract and Option contract Option contract gives the right to the holder to buy or sell…

Q: Is the “forward price” the same thing as the “value of the forward contract” Explain.

A: Derivative is defined as the contract, which are between the two or more parties, who has the value…

Q: Answer the following: a. Explain why the interest parity condition must hold if the foreign exchange…

A: Foreign exchange market is referred as the market, where the different currencies used to get…

Q: Demonstrate how interest rate and currency swaps are constructed and discuss the comparative…

A: Two parties can exchange cash flows based on various interest rates or currencies using financial…

Q: Choose the correct answer and give short explaination. 3. Advantages of a fixed exchange rates…

A: Fixed exchange rate means that the exchange rate for business transaction between 2 parties in…

Q: What is the main purpose of a hedging strategy using a forward contract or a futures contract?…

A: Hedging-It is a risk management strategy undertaken by individuals, investors, corporates to offset…

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.