Hedging ki strategy2

One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be one day, a few days, months or years. Usually the date is decided by both parties. Then the forward contract is negotiated and agreed upon by both parties.

Swap[edit]
Main article: Foreign exchange swap
The most common type of forward transaction is the foreign exchange swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange. A deposit is often required in order to hold the position open until the transaction is completed.

Future[edit]

reated for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.

Currency futures contracts are contracts specifying a standard volume of a particular currency to be exchanged on a specific settlement date. Thus the currency futures contracts are similar to forward contracts in terms of their obligation, but differ from forward contracts in the way they are traded. They are commonly used by MNCs to hedge their currency positions. In addition they are traded by speculators who hope to capitalize on their expectations of exchange rate movements.

Option[edit]
Main article: Foreign exchange option
A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The options market is the deepest, largest and most liquid market for options of any kind in the world.

Speculation[edit]
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do.[78] Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.[79]

Futures are standardized forward contracts and are usually traded on an exchange c
Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors.[80] Also to be considered is the rise in foreign exchange autotrading; algorithmic, or automated, trading has increased from 2% in 2004 up to 45% in 2010.[81]

Currency speculation is considered a highly suspect activity in many countries.[where?] While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona.[82] Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.

Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.[83]

In this view, countries may develop unsustainable financial bubbles or o

nsaction (except in the case of trades between the US Dollar, Canadian Dollar, Turkish Lira, Euro and Russian Ruble, which settle the next business day), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract, and interest is not included in the agreed-upon transaction. Spot trading is one of the most common types of Forex Trading. Often, a forex broker will charge a small fee to the client to roll-over the expiring transaction into a new identical transaction for a continuum of the trade. This roll-over fee is known as the "Swap" fee.

Forward[edit]
See also: Forward contract
Main article: Currency futuretherwise mishandle their national economies, and foreign exchange speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling, followed by an eventual, larger, collapse. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.

Risk aversion[edit]
See also: Safe-haven currency


Fig.1 Chart showing MSCI World Index of Equities fell while t

ther markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns.[77]
Financial instruments[edit]
Spot[edit]
Main article: Foreign exchange spot
A spot transaction is a two-day delivery trahe US Dollar Index rose.
Risk aversion is a kind of trading behavior exhibited by the foreign exchange market when a potentially adverse event happens which may affect market conditions. This behavior is caused when risk averse traders liquidate their positions in risky assets and shift the funds to less risky assets due to uncertainty.[84]

In the context of the foreign exchange market, traders liquidate their positions in various currencies to take up positions in safe-haven currencies, such as the US Dollar.[85] Sometimes, the choice of a safe haven currency is more of a choice based on prevailing sentiments rather than one of economic statistics. An example would be the Financial Crisis of 2008. The value of equities across the world fell while the US Dollar strengthened (see Fig.1). This happened despite the strong focus of the crisis in the USA.[86]

Carry trade[edit]
Main article: Carry trade
Currency carry trade refers to the act of borrowing one currency that has a low interest rate in order to purchase another with a higher interest rate. A large difference in rates can be highly profitable for the trader, especially if high leverage is used. However, with all levered investments this is a double edged sword, and large exchange rate fluctuations can suddenly swing trades into huge losses.

Main article: Forex signal
Forex trade alerts, often referred to as Forex Signals are trade strategies provided by either experienced traders or market analysts. These signals which are often charged a premium fee for can then be copied or replicated by a trader to his own live account. Forex signal products are packaged as either alerts delivered to a user's inbox or SMS, or can be installed to a trader's trading platforms. Algorithmic trading, whereby foreign exchange users can programme (or buy ready made software) to place trades on their behalf, according to pre-determined rules has become very popular in recent years. This means that users can set their 'Algos' to trade on their behalf, thus reducing the need to sit an monitor the markets continuously, plus it can remove the element of human emotion around executing a trade.

See also[edit]
Balance of trade
Currency codes
Currency strength
Foreign currency mortgage
Foreign exchange controls
Foreign exchange hedge
Foreign exchange reserves
Foreign exchange derivative

he Financial Markets (pdf)
Jump up ^ Global imbalances and destabilizing speculation (2007), UNCTAD Trade and development report 2007 (Chapter 1B).
Jump up ^ http://www.bis.org/press/p130905.htm
^ Jump up to: a b c 2013 Triennial Centra

change?". Published by the International Business Times AU. Retrieved: February 11, 2011.
Jump up ^ CR Geisst – Encyclopedia of American Business History Infobase Publishing, 1 Jan 2009 Retrieved 2012-07-14 ISBN 1438109873
Jump up ^ GW Bromiley – International Standard Bible Encyclopedia: A–D Wm. B. Eerdmans Publishing, 13 Feb 1995 Retrieved 2012-07-14 ISBN 0802837816
Jump up ^ T Crump – The Phenomenon of Money (Routledge Revivals) Taylor & Francis US, 14 Jan 2011 Retrieved 2012-07-14 ISBN 0415611873
Jump up ^ J Hasebroek – Trade and Politics in Ancient Greece Biblo & Tannen Publishers, 1 Mar 1933 Retrieved 2012-07-14 ISBN 0819601500
Jump up ^ http://www.ancient.eu.com/article/115/
Jump up ^ RC Smith, I Walter, G DeLon

Money market
Nonfarm payrolls
Tobin tax
World currency
References[edit]
Jump up ^ The Economist – Guide to tl Bank Survey, Bank for International Settlements.
Jump up ^ "What is Foreign Exg – Global Banking Oxford University Press, 17 Jan 2012 Retrieved 2012-07-13 ISBN 0195335937
Jump up ^ (tertiary) – G Vasari – The Lives of t

organization, management, operations and decline New York Univ. Press, 1948 Retrieved 2012-07-14
Jump up ^ Cambridge dictionaries online – "nostro account"
Jump up ^ Oxford dictionaries online – "nostro account"
Jump up ^ S Homer, Richard E Sylla A History of Interest Rates John Wiley & Sons, 29 Aug 2005 Retrieved 2012-07-14 ISBN 0471732834
Jump up ^ T Southcliffe Ashton – An Economic History of England: The 18th Century, Volume 3 Taylor & Francis, 1955 Retrieved 2012-07-13
Jump up ^ (page 196 of) JW Markham A Financial History of the United States, Volumes 1–2 M.E. Sharpe, 2002 Retrieved 2012-07-14 ISBN 0765607301
Jump up ^ (page 847) of M Pohl, European Association for Banking History – Handbook on the History of European Banks Edward Elgar Publishing, 1994 Retrieved 2012-07-14
Jump up ^ (secondary) – [1] Retrieved 2012-07-13

n: Development Since 1900 Psychology Press, 2005 Retrieved 2012-07-13 ISBN 041534901X
Jump up ^ J Wake – Kleinwort, Benson: The History of Two Families in Banking Oxford University Press, 27 Feb 1997 Retrieved 2012-07-13 ISBN 0198282990
Jump up ^ Laurence S. Copeland – Exchange Rates and International Finance Pearson Education, 2008 Retrieved 2012-07-15 ISBN 0273710273
Jump up ^ M Sumiya – A History of Japanese Trade and Indus

1880" is within 1.2 Value Terms] John Wiley & Sons, 22 Nov 2011 Retrieved 2102-07-27 ISBN 1119994896
Jump up ^ T Hong – Foreign Exchange Control in China: First Edition (Asia Business Law Series Volume 4) Kluwer Law International, 2004 ISBN 9041124268 Retrieved 2013-01-12
Jump up ^ P Mathias, S Pollard – The Cambridge Economic History of Europe: The industrial economies : the development of economic and social policies Cambridge University Press, 1989 Retrieved 2012-07-13 ISBN 0521225043
Jump up ^ S Misra, PK Yadav [2] – International Business: Text And Cases PHI Learning Pvt. Ltd. 2009 Retrieved 2012-07-27 ISBN 8120336526
Jump up ^ P. L. Cottrell – Centres and Peripheries in Ba

ederal Reserve, Volume 2, Book 1; Books 1951–1969 University of Chicago Press, 1 Feb 2010 Retrieved 2012-07-14 ISBN 0226520013
Jump up ^ (page 7 "fixed exchange rates" of) DF DeRosa –Options on Foreign Exchange Retrieved 2012-07-15
Jump up ^ K Butcher – Forex Made Simple: A Beginner's Guide to Foreign Exchange Success John Wiley and Sons, 18 Feb 2011 Retrieved 2012-07-13 ISBN 0730375250
Jump up ^ J Madura – International Financial Management Cengage Learning, 12 Oct 2011 Retrieved 2012-07-14 ISBN 0538482966
Jump up ^ N DraKoln – Forex for Small Speculato

Jump up ^ S Shamah – A Foreign Exchange Primer ["nking: The Historical Development of Financial Markets Ashgate Publishing, Ltd., 2007 Retrieved 2012-07-13 ISBN 0754661210
Jump up ^ P. L. Cottrell (p.75)
Jump up ^ J Atkin – The Foreign Exchange Market Of Londotry Policy Oxford University Press, 2000 Retrieved 2012-07-13 ISBN 0198292511
Jump up ^ RC Smith, I Walter, G DeLong (p.4)
Jump up ^ AH Meltzer – A History of the Frs Enlightened Financial Press, 1 Apr 2004 Retrieved 2012-07-13 ISBN 0966624580
Jump up ^ (SFO Magazine, RR Wasendorf, Jr.) (INT) – Forex Trading PA Rosenstreich – The Evolution of FX and Emerging Markets Traders Press, 30 Jun 2009 Retrieved 2012-07-13 ISBN 1934354104
Jump up ^ J Jagerson, SW Hansen – All About Forex Trading McGraw-Hill Professional, 17 Jun 2011 Retrieved 2012-07-13 ISBN 007176822X
Jump up ^ Franz Pick Pick's currency yearbook 1977 – Retrieved 2012-07-15
Jump up ^ page 70 of Swoboda ?
Jump up ^ G Gandolfo – International Finance and Open-Ec