Home » FOREIGN EXCHANGE EXPOSURE ANDRlSK MANAGEMlt'NT
Reinvoicing Center
The reinvoicing center in Mncs is Baku to’ a clearing h~use .n a’ banking system. It may be beneficial for an ENC’ to create a separate center 10 manage foreign exchange risk exposure. Such a center, known as reinvoicing center, is itself a subsidiary of the rent company; its location, for obvious reasons, is preferred in a country where exchange regulations, in te
Netting
It may not be uncommon among international companies to have mutual trading among themselves like multinational companies. Foreign exchange risk exposure of such companies can be ‘!lib~antisocially reduced if foreign designated receivables and payments among them are settled on be 111.’balance basis (known 3 nc ling) instead of making two way flows of money of receiving and another o
Shifting the Manufacturing Base
The use of such :l technique is feasible for large Mn Cs ha ING large financial resource-s and a lag chain of s~starlight’s operating round the world. In case an ENC has a production center in on country and large sales in some another country, it may find it useful to have a new subsidiary SE up or shift the existing one to a country where there are substantial sales
Indexation Clauses
Yet another technique of hedging risk is to provide clause (s) related to the export and import of goods and services between the two parties in contracts agreements. Obviously, the terms and conditions included in the contract depend on the bargaining strengths of the parties involved For For For For Instance, the exporter may be in a better bargaining position (on account of selling new
Invoicing Billing in Desired Currency
1 IS an ideal method of hid in( foreign exchange ask , Mogul in one currency enables the firm to know the precise amount It ).< Indy to receive from sales (exports) and likewise the exact mount it is to ray for purchases (imports). As a foreign exchange risk is completely eliminate rued
Although the method provides a natural hedge, it may not he operationally feasib
Leading and Lagging
Sound international financial management practices warrant that the rums engaged in international operations should endeavor o have their assets pitta strong currency and liabilities in a weak currency. This may be achieved with the help of the technique now as ‘Reading and. lagging’ (also caned leads and lags) by adjusting the timing of receipts and payments (related to cu
Pound Sterling Depreciates
on the settlement dale, the importer will prefer 10 abandon the call option as it is economically cheaper 10 buy the required mount of pounds directly from the exchange market. His total cash outflow will be lower at Rs 157.1 million, (£2 million x R< 77) Premium of Rs 3.1 million, already pd . Thus, it is clear that the importer is not to pay more than R< till’s m
Call Option
In a call option the holder has the right to buy/call a specific currency at a specific price on a specific maturity date or within a classified period of time’, However, the holder of the option is under no obligation to buy the currency, Such an option is to I~ exercised only when, the actual price in the forex market, at the time of the exercising option, is more than the price specifi
Currency Options
Forward contracts as well as futures (‘(~entrant~ provide a hedge In firms again~t adverse movements in exchange rates. This is the ajor advantage of such fin I II”~’ documents. However, at tho.: same time, these contracts deprive firms of a chance to ;1\;111 ill’ )cndits that Allay ~strut’ due 10 L”‘tolerable move merits in further(n exchange
Currency Futures
Currency futures are closely related to forward contracts. These are more popularly known, as futures contracts and are traded at he futures markets, A futures contract is a standardized agreement to buy or sell a pre specified amount of foreign currency in the uterus market at some specified future date between the parties to the contract, Currency futures contracts skillets are for t
