FOREX & RISK MANAGEMENT

PRESENTED BY :

Mohammed Ali Ansari Sudhir Purohit Dimple Patel

WHAT IS FX
Exchange of one currency for another.
Exchange is done at a particular rate
called the exchange rate or the FX rate.

The FX rate is the price of one currency in

terms of another.

WHAT DOES FX PROVIDE

The method or mechanism to conduct and
settle the proceeds of international trade

The means to minimise the risks of

currency fluctuations

Trading opportunities to generate

incremental income.

Research Methodology
OBJECTIVES OF THE STUDY
To know about the various concept and
technicalities in foreign exchange. To know the various functions of MECKLAI regarding their advisory services. To measure the awareness level for managing foreign exchange. To get the knowledge about the hedging tools used in foreign exchange.

About the Company

Mecklai Financial is a professional risk management
consulting company, which uniquely blends the skills of the best market practitioners with in-depth understanding of business processes and risk.

MISSION OF THE COMPANY

To use their breadth of knowledge to enable clients to Ensure that their bottom line does not suffer from unpleasant surprises, Extract optimal - i.e., risk-adjusted - value out of financial markets, and Enhance management information to enable better performance attribution, more accurate regulatory reporting, and, ultimately, more effective strategic decision-making

Services Provided BY Mecklai.

INFORMATION SERVICE They provide a comprehensive forex information
service, which includes (a) The fortnightly Mecklai Market Report, one of the most sought after newsletters in the country; (b) Four daily information feeds (by fax or email) providing detailed information about the markets, including the Mecklai Daily Rate Sheet, which is now a benchmark in the Indian forex market; (c) Subscriber access to our web-site, www.mecklai.com, which provides a wide range of information and analysis, training materials and value-added services

 Their risk management advisory service is designed

RISK MANAGEMENT ADVISORY SERVICES

to provide long term value to clients by assisting them to most effectively run the "front office" of their treasury, covering forex, interest rate and derivative markets.
CORPORATE SERVICES :

The Corporate services includes assisting the

companies to understand the lacunae in their processes and assist them to build sustainable risk management frameworks, so that market decisionmaking is treated as most other corporate functions viz., executed by experts and overseen by senior management.

Mecklai Risk Manager Software

MARKET PARTICIPANTS
Corporate Customers
Banks

Central banks
Exchange brokers Overseas FX markets

Speculators

FACTORS AFFECTING EXCHANGE RATES

Balance of payments
Strength of the economy

Fiscal policy
Interest rate Monetary policy

Political factors

Types of Rates
Direct Rate
Indirect Rate Cross Rate

DIRECT RATE
Its an expression of the value of foreign
currency in domestic currency terms.

1 USD = INR 46.45 1 EUR = INR 52

INDIRECT RATE
Its an expression of the value of domestic
currency in foreign currency terms. Indirect rates are also called reciprocal rates.

1 INR = 0.086 USD 1 INR = 0.019 EUR

CROSS RATE
Its an expression of the value of one
foreign currency versus another foreign currency, neither of which is a domestic currency.

USD/JPY = 114.28 EUR/USD = 1.1625

WHAT DOES CURRENCY AT PREMIUM SUGGESTS

Where a currency is costlier for a forward
value date, it is said to be at a premium. In case of direct quotes, the premium is added to the spot rate for both, buying and selling.

WHAT DOES CURRENCY AT DISCOUNT SUGGEST

Where a currency is cheaper for a forward

value date, it is said to be at a discount. Incase of direct quote, discount is deducted from the spot rate for both buying and selling.

WHAT DOES CURRENCY AT PAR SUGGEST

Where a currency value is the same for

forward value date as spot it is said to be at Par. No adjustment need to be made to the spot rate where the currencies are at par to derive a the forward rate as the forward rate is the same as the spot rate.

HEDGING INSTRUMENTS
FORWARD
FUTURES OPTIONS SWAPS

FORWARD
A forward exchange contract is one where the
counterparties agree to exchange currencies at a fixed rate either of a fixed date in the future or during a future period, (time option)

Fixed date forward contracts

Customized contract

FUTURES CONTRACT
A currency futures contract is an
agreement to buy or sell, on the futures exchange, a standard quantity of foreign currency at a future date at the agreed price. The counterparty to a futures contract is the futures exchange which ensures that all the contracts will be honored.

CURRENCY OPTIONS
Currency options is a contract wherein the
buyer of the option has the right to buy or sell a fixed amount of one currency versus another at a fixed rate on a date in future but has no corresponding obligation. The rate, currencies, amount and date are predetermined at the time of entering into the contract.

OPTION TERMINOLOGY
1) Premium

2) Call option 3) Put option 4) Strike price 5) Buyer 6) Seller

OPTION TERMINOLOGY (contd)

7) Expiration 8) American style option 9) European style option 10) In the money

11) At the money

12) Out of money

CONCLUSION
Hedging strategies depend upon companys
exports and imports

Awareness level among the importers and

exporters is very low acco.to the survey

Much depends upon companys awareness about

such strategies and their appropriate uses benefit the companys cash flow.

Optimum combination of hedging strategies can