Currency Hedging - MGT 448

Rising trends toward the globalization of goods and services over the last few years means that more and more firms must now realize decisions about their foreign exchange exposure. In addition, this need is fire by the increasingly volatile foreign exchange markets. fill in number risk exists when a firms revenues and expenses are valued in different currencies. Exchange rate risk naturally has an tiptop as well as a downside, plainly the escort of most developing countries has usually been depreciation against more unchangeable currencies (Matsukawa). Currency hedging, or management of foreign exchange risk, is a method in which firms try to evade losses, not bonnie on current transactions, but also on pass judgment future cash flows. There are different ways a firm can hedge against exchange rate risk.

         art in each pair of currencies consists of two parts - the piazza market, where payment is made right away, and the forward market. The rate in the forward market is a price for foreign bills set at the time the transaction is agreed to but with the actual exchange taking place in the future. This assurance to exchange currencies at a later date at an agreed exchange rate is called a forward contract, and is unmatchable of the most common ways to manage exchange rate risk (Brealey 679).



        

Another way to hedge against foreign markets is with the use of futures contracts. Futures contracts are agreements made in the present for the purchase or barter of an asset in the future (Brealey 679). One difference among forward contracts and futures contracts is modelization. Forwards are for any amount, where futures are for standard amounts. Another difference is that forwards are traded by shout and telex and are completely independent of location or time (Brealey 679). Futures are traded in organized exchanges...

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