Risk management when dealing with foreign exchange (forex)

Type :

Theses

Pages :

77 pages

Format :

.doc

Published date :

04/08/2009

Category :

Business & market

Sub category :

Management

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Summary :

Introduction
What is risk management?
1. How to manage risks?
Introduction to foreign exchange
1. A brief history of foreign exchange
2. Fixed and floating exchange rates
Exchange rate systems in various countries
Overview of foreign exchage market
1. Need and importance of foreign exchange market
2. Consolidation & fragmentation of foreign exchange market
3. Advantages and disadvantages of foreign exchange market
The role of global economy in foreign exchange market
The four levels of participants in the foreign exchange market
Methods of quoting exchage rates
Foreign exchange market vs other markets
Five foreign exchange risks
Key terms in foreign currency exposure
Foreign exchange risk management strategies
What is spot exchange market?
What is forward exchange market?
A study on currency futures
Differences between forward contracts & future contracts
A study on currency swaps
Interview with Mr.Sanjay Podar, Forex Dept. Standard Chartered
Conclusion
Bibliography

Abstract

risk can be explained as an uncertainty and is usually associated with the unpredictability of an investment performance. All investments are subject to risk, but some have a greater degree of risk than others. risk is often viewed as the potential for an investment to decrease in value. Though quantitative analysis plays a significant role, experience, market knowledge and judgment play a key role in proper risk management. As complexity of financial products increase, so do the sophistication of the risk manager's tools. We understand risk as a potential future loss. when we take an insurance cover, what we are hedging is the uncertainty associated with the future events. Financial risk can be easily stated as the potential for future cash flows (returns) to deviate from expected cash flows (returns).There are various factors that give raise to this risk. Return is measured as Wealth at T+1- Wealth at T divided by Wealth at T. Mathematically it can be denoted as (WT+1-WT)/WT. Every aspect of management impacting profitability and therefore cash flow or return, is a source of risk. Financial risk management risk management is the process of measuring risk and then developing and implementing strategies to manage that risk. Financial risk management focuses on risks that can be managed ("hedged") using traded financial instruments (typically changes in commodity prices, interest rates, foreign exchange rates and stock prices). Financial risk management will also play an important role in cash management. This area is related to corporate finance in two ways. Firstly, firm exposure to business risk is a direct result of previous Investment and Financing decisions. Secondly, both disciplines share the goal of creating, or enhancing, firm value. All large corporations have risk management teams, and small firms practice informal, if not formal, risk management.