Forex

Question 1

what are the method of hedging the exposure to currency risk

Answer 1

Leading or lagging
netting receipts and expenditures (netting assets and liabilities)
forward exchange contracts
creating a money market hedge
currency futures
currency options and
currency swaps

Question 2

rule for direct quote

Answer 2

the rule for direct quote is CDD
currency in direct is in denominator

Question 3

rule for indirect quote

Answer 3

CIN
currency in indirect is in numerator

Question 4

steps involved in money market hedge for future payments

Answer 4

1. invest the Forex for period in which payment to be received @ Iending rate
2. to buy forex for investment in step 1 you have to buy @spot rate from market @ selling rate
3. for rupees to buy forex you have to borrow in rupees at borrowing rate

Question 5

Steps involved in money market hedge for future receipts

Answer 5

1. borrow the PV of future receipt of forex @ borrowing rate
2. convert that in Rupees @ Spot Buying rate
3. Invest in rupees and lending rate