GBDA 102 Lecture Notes - Lecture 6: Foreign Exchange Risk, Forward Rate, Financial Transaction
2 Aug 2016
School
Department
Course
Professor
Document Summary
Foreign exchange risk financial risk that exists when a financial transaction is denominated in a currency other than that of the base currency of the company. Managing fer: natural hedging/netting: purchase and sell in foreign currency, hedging: different tools to help manage fer. Forward rate: rate at which two parties will exchange currencies on a specified future date. Basically says i will sell you this much money in this much time, and this is the rate i will use . This means both parties can know what they will be paying in the future. Simultaneous purchase and sale of foreign exchange for two different dates. Option to exchange a specific amount of a currency on a specific date at a specific rate. Eg. purchase 1m us at a rate of 1cdn$/usd in one month: but if the exchange rate changes (eg. . 2cdn/usd), then the company will honour the agreement (as it now is.
