International trade has increased rapidly as the Internet, a new and more transparent market for individuals and organizations, both international business and conduct business. Significant changes in the international political and economic landscape of uncertainty regarding the direction of exchange rates determined. This uncertainty leads to volatility and the need for an effective tool for exchange rate risks and / or hedging interest rate --Changes at the same time, effectively ensuring a future financial situation.
Every company and / or individuals that exposure to exchange rate risk and foreign exchange hedging needs and this website can not cover all existing foreign exchange hedging situation. Therefore, there are the most common reasons that a hedge exchange rate is, and show you how to properly cover the exchange risk.
Foreign Exchange Rate RiskExposure - Foreign exchange risk is common to almost everyone in the international trade and / or commercial. Purchase / sale of goods or services in foreign currency, you can immediately suspend the exchange risk. If a fixed price and the first time for a treaty with an exchange rate that is considered appropriate at the time the quotation was given, the exchange offer is not necessarily the date of actual reasonableAgreement or the execution of the contract. Placing a foreign exchange hedge can help to manage the exchange risk.
Interest rate risk exposure - Interest rate risk refers to the interest rate differential between the currencies of both countries to exchange contracts. The differential rate of interest is also due to approximately equal to "carry" the costs of a first or hedge futures contract. As a side note, arbitrage, investors are using, if the interest rateDifferences between the rate of foreign exchange spot and both the forward or futures contract are too high or too low. In simple terms, an arbitrage trader can sell if the costs he or she may collect the wear is sold at a premium to the actual cost of the contract. Instead, the purchase of an arbitrage trader, pay the costs if he or she may pay is less than the actual purchase cost of the contract. In any case, the arbitrage trader is looking for a small price difference on profitsInterest rate differentials.
Foreign Investment / Stock Exposure - Foreign investment is to diversify by many investors as a way or an investment portfolio or seeking a return on investment greater than (s) believed to be in an economy that grows faster than investment (s ) their national economy. Investments in foreign shares automatically sets the investor to the risk of exchange rate risk and speculative. For example, an investor buys a certain amount ofForeign currency (in exchange for domestic currency) for the acquisition of shares in a stock exchange market. The investor is now automatically exposed to two risks. First, the price may go up or down and the investor is exposed to the stock speculation. Secondly, the investor is exposed to foreign exchange risk, because the exchange rate may either appreciate or depreciate from the moment of the first foreign investor bought the stock and the date ofInvestor decides to exit the position and repatriates the currency (the back of trade in foreign currency) on the domestic currency. Thus, even if done speculative profits, because the price of foreign stocks has risen, investors lose money if they actually went to the net depreciation of the currency in which the foreign investors, the market (and the devaluation amount was greater ) compared to speculative profits. Placing a foreign exchange hedge can help to manage these foreignExchange risk.
Hedging Speculative Positions - Foreign currency traders use forex hedging open positions against adverse movements in exchange rates for the protection, and the creation of a exchange hedge can help to control foreign exchange risk. Speculative positions can be a number of foreign exchange hedging vehicles that can be used alone or in combination, all create new strategies for hedging to be insured.