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

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: 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: Discuss well about the exchange Rate Mechanisms of currencies; what does it mean  “Independent…

A: Answer:-  Currency meaning:- The public uses currency, an officially recognized type of money, for…

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: What is meant by the terminology that an option is in-, at-, or out-of-the-money

A: By deducting the strike price from the current value of the underlying securities, one can determine…

Q: Exchange rates fluctuate under both the fixed exchange rate and floatingexchange rate systems. What,…

A: Fixed exchange rate: Fixed exchange rate is formally set by the administration or monetary authority…

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: What three real-world complications keep purchasing power parity from being a complete explanation…

A: Purchasing power parity-It states that exchange rates between two currencies are in…

Q: 2. How fixed exchange rate system of UAE is managed? Show this for both surplus and deficit balance…

A: The exchange rate system explains how the exchange rate determines in respect of the other nation's…

Q: options contracts

A: An option contract illustrates a two-party agreement that authorises a transaction on a certain…

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 is the primary distinction between exchange-listed and over-the-counter options? Which option…

A: There are various uncertain future factors which can create the risk in coming time, to avoid or…

Q: Distinguish between the spot market and forward market for foreign exchange.

A: The objective of this question is to differentiate between the spot market and the forward market in…

Q: Who are the major actors in the exchange rate market and what are their roles?

A: The exchange rate market is also known as the Forex, it is a market for the changing home currency…

Q: Question 4 There are two main functions of foreign exchange market; to convert the currency of one…

A: It the place where of one country is converted into currency of the other country.  It is a Over The…

Q: A foreign currency swap is simply an agreement between two parties to exchange one currency for…

A: Swap is a financial derivative between two parties who agrees to exchange their payment flows for…

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: What are the main differences between forward contracts and futures contracts. b) What is meant by…

A: Since you have asked multiple questions, we will solve the first question for you. Please ask…

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: 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: differences between translation risk and transaction risk

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

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: 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: The advantage of over-the-counter products such as swaps or forwards contracts,relative to…

A: The question is multiple choice question. Required  Choose the Correct Option.

Q: system, the three endogenous variables in the IS/LM/BP model are output, interest rates and money…

A: THE Mundell Fleming model is known as IS /LM/BOP MODEL. The equation more relevant for small open…

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: Under a flexible exchange rate system, the three endogenous variables in the IS/LM/BP model are…

A: THE MUNDELL FLEMING MODEL , AS THE ECONOMY cannot maintain a fix exchange rate three capital women…

Q: Compare and contrast a currency forward contract and a currency futures contract

A: Currency forward contracts and currency futures contracts are arrangements to purchase or sell a…

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: Explore the concept of arbitrage on the currency exchange markets and critically evaluate with…

A: Arbitrage is the practice of purchasing and selling an item in numerous markets at the same time 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.