CHECK THESE SAMPLES OF Analytical Application: The Use of Currency Future Contracts as a Hedging Strategy to Mitigate the Likelihood f Adverse Foreign Exchange Movements
...? Currency Exchange Assignment XXXXX XXXXX XXXXX XXXXX XXXXX Sterling/US dollar exchange rate over the last 5 years Since the collapse of the Bretton Woods system, exchange rates between currencies have been very unstable. Under the system of Bretton Woods for instance, exchange rates were fixed at levels determined by the government. Since then, however, rates are determined by people selling and buying currencies in the foreign exchange markets. The history of the pound sterling/USD shows that the rate did not change at all between 1949 and 1966. Around 1967 the GBP was...
9 Pages(2250 words)Essay
...and their respective currency. This would be done by intervening in the market of foreign exchange. The system lasted up to 1971. Inflation in the U.S and the trade deficit were undermining the dollar value. The U.S abandoned the system allowing the dollar to ‘float’ instead of fixing it. The current system is stable as it provides for variables like trade deficits and inflation. The dollar is fived by the markets. However, depreciation, which causes a rise in prices in the domestic markets, will destabilize the system. Question 2: What is foreign aid and what is the goal of foreign aid? Does foreign aid promote economic development?...
3 Pages(750 words)Essay
...in curtailing the impact of it. In the dynamic financial world of today, hedging is practiced by investment bankers, portfolio managers, individual investors and other corporations. From the look of it, hedging can appear to be quite a simple transaction, but in reality it is quite a complex arrangement. The primary reason for using hedging is to guard against the adverse price movement in the financial markets through the use of instruments. [Haight, T.G., and Kehly, J.C.Jr. (1995),] The following table summarizes the risk and methods used to curtail them. Exposure Hedging Through...
3 Pages(750 words)Essay
...to be used in currency conversion. The pre-determined exchange rate is arrived at following a market analysis of the exchange rate movement. In this strategy, the pre-determined rate is to be applied regardless of the spot rate on contract maturity. Therefore, an unfavorable exchange rate movement would be mitigated by the application of the pre-determined rate. The borrower would pay less than he would have if the spot rate was used in currency conversion thus mitigating losses (Isard, 1997)....
4 Pages(1000 words)Essay
...hedging strategy (Garman, & Kohlhagen, 1983). However it can be regarded as a part of the foreign currency hedging while than the total hedging solution for the investors.
Forward Contracts:
Forward contract is an agreement between two parties to buy or sell a foreign currency at a particular future time period with agreeing to a particular price. It provides the ability to lock the purchase price without any direct cost and it is used by corporate treasurers to lock in cash planning, profit margin and to ensure the continuous...
22 Pages(5500 words)Essay
...Foreign Exchange Currency Markets In the simplest of terms, the gold standard is a defunct monetary system in which paper notes or currency itself was freely convertible to a fixed quantity of gold. While it was used by almost every nation in the world a few decades ago, the gold standard has been abandoned by all nations as foreign exchange currency markets have replaced the idea of currency being traded for gold.
Historically speaking, gold has been important as a metal and as a currency for thousands of years. However, it was only in the last century that an...
5 Pages(1250 words)Essay
...either use the spot market if I feel it is safe because exchange rates are not likely to change, or I could use a forward contract to hedge my position. Inasmuch as I am entrusted with the duty of ensuring that I am able to buy Y100,000 at or near the current rate, without incurring any risk, I would hedge with a forward contract which costs only $1.40 more than spot based on the quotes given. This means arranging the contract with a bank at $904.80, which is the amount I will pay the bank a month from now. While I could lose a profitable opportunity if the market moved in the opposite direction, I...
2 Pages(500 words)Essay
...takes a position by investing some amount towards margin as specified by the exchange or clearing organization. The futures position is "marked to the market" daily and hence the trader needs to put additional margins if the market moves against the position taken by the trader.
2Hedging and speculating are the two primary ways in which forex derivatives are used. Hedgers use forex futures to reduce or eliminate risk by insulating themselves against any future price movements. Speculators, on the other hand, want to incur risk in order to make a profit. While closing futures hedgers prefer...
5 Pages(1250 words)Research Paper
.... The improvements in hedging practices of Australian firms started in the early 1990s.
This paper also provides the kinds of hedging practices used by Australian firms. In consideration to the importance of findings of Australia Bureau of Statistics (ABS) survey of hedging practices 2001, the Reserve Bank asked ABS to conduct a second survey in 2005. The findings of second survey complement the findings of first survey of ABS. It was found that at 31 March 2005, net foreign currency asset position of Australia residents was $218 billion and the banking sector has the largest foreign currency liability...
7 Pages(1750 words)Research Paper
...Hedging strategy of the of the Is a hedging strategy the best plan of action? Clark should consider the Treasury bond futures hedging strategy because it is the most efficient fundamental tool of risk management for all the investors around the globe. If Clark plan to buy fixed income/returns securities in the upcoming period and is concerned regarding the probability of high prices, then he can purchase treasury futures as well as secure an utmost purchase price. By selling the Treasury bond futures, Clark can lock in a higher selling price as well as protect the worth of individual security or portfolio against likely decreasing prices. By considering the Treasury bond futures hedging strategy, he can minimise his risk... with this, he...
2 Pages(500 words)Essay
