4. Currency Risks Flashcards
What is Transaction Risk?
The risk of adverse exchange rate movements occurring in the course of normal international trade
What is Economic Risk?
The effect of exchange rate movements in the long term - effecting international competitiveness
What is translation risk?
The exchange losses when accounting for foreign subsidiaries - not cashflow - may effect gearing etc.
The Bank SELLS you currency higher or lower?
Lower
What would damage IMPORTERS making foreign currency payments?
A weakening Pound £££
How many decimal places for Exchange Rate Questions?
4!
Forward contract discounts are…
Added back on!
OTC options, when looking at calls and puts
Pay attention to currency type
You buy STERLING from the bank at?
The higher price
Positives negatives - forwards
Tailored (specific)
No upside possible
No secondary market
Benefits negatives - futures
Contracts
Secondary market exists
Requires liquidity
No upside
Benefits/negatives - OTC options
Protect from downside risk
Allow for potential upside
Premium is expensive
