Third Year Bachelors of Financial Markets

ISHA NALIERWALA-

519

VIDHI NISAR-

520

Foreign exchange business Fluctuations in Foreign currency Causes of fluctuations: National boundaries Rate movements Timing Credit agencies

Transaction risk Position risk Settlement or credit risks Mismatch or liquidity risk Operational risk Sovereign risk Cross country risk

Trading items (foreign currency, invoiced trade receivable and payables)and Capital items (foreign currency dividend and loan payments). Exposure associated with the ownership of foreign currency denominated assets and liabilities

Occurrence

Prevention measures

 Pre

settlement risk Existence Denomination Settlement risk Existence

Dealing and settlement Conformation

Pipeline transaction
Overdue bills and forward contracts

Transaction exposure. Economic exposure. Translation exposure.

Contingent exposure. Competitive exposure.

Definition: Deliberate creation of a position for the express purpose of generating a profit from exchange rate fluctuations, accepting the added risk. There are two types of risks: Pure Risk and Speculative Risk

With Motive of speculative profits, lots of money floats in the universal market. This money is highly volatile and 'runs after profits. It changes hands from options to futures to forwards to commodities and also to banks. Such volatile funds moving profits are termed as 'Hot Money Hot money may be defined as International monetary flows which move from one market to another in search of quick capital gains.

BULLS:-A bull market is when everything in the economy is great, people are finding jobs, gross domestic product (GDP) is growing, and stocks are rising. If a person is optimistic and believes that stocks will go up, he or she is called a "bull" and is said to have a "bullish outlook".

A bear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".

Making an investment to reduce the risk of adverse price movements in an asset. Normally, hedging consists of taking an offsetting position in a related security, such as a futures contract.