This document discusses various techniques for managing foreign exchange risk in Forex dealings. It outlines short-term and long-term risks and how businessmen can manage risks and make profits. Some key risk management techniques discussed include hedging using forwards, money markets, rollover contracts, currency futures, options, and swaps. Forwards involve buying/selling a currency at a fixed future date. Money markets and rollover contracts help cover exposed positions. Currency futures and options provide tools to hedge currency risk. Currency swaps exchange one currency for another at pre-set terms.

1. FOREX RISK MANAGEMENT
TECHNIQUES

2.  Foreign exchangetransactionswhich need to
becovered
1. Short Term – dealt with using financial
instruments
2. Long Term – changesin operationsof
thecompany.

3. How does businessmen manages
risks and make profits in Forex
Dealings
 Hedge
 Options
 Rollover Cover
 Swaps
 Spot
 Forward Dealingsetc.

4. Spot Foreign ExchangeRates
 Priceexpressed in homecurrency , payablefor spot
delivery of specific typesof foreign goods.
 Conducted in thespot forex market
 Buyer getsgoodsdelivered on thespot and seller gets
on thespot money.

5. Forward Foreign ExchangeRates
 Priceat which atransaction will becarried out in a
futureagreed dateand rate.
 Of greater importancein international capital
movements.
 Forex bank playsimportant roleon thepart of
prospectiveimporter and exporter.
 Developed to minimizetherisksfrom fluctuationsover
timein spot exchange
 Forex market protectstheimportersand exporters
against therisk of fluctuation through hedging or
covering.

6. 1. Forward Market Hedge
VariousForex Risk Management
Techniques
 Buy and Sell acurrency at afixed futuredate
for predetermined value.
 A net liability position isconverted by an
asset
 Dealer will chargeacommission for
performing thetransaction.

7. 2. Money Market Hedge
 Trading in short term financial instruments
 Company could usethemoney market to lend
or borrow, to achievesimilar result of
Forwards.
 Theexposed position in aforex currency is
covered through borrowingsor lending in
money market.
 Thisisto avoid thefuturerateuncertainty, by
making exchangeat today'sspot rate.

8. 3. RolloverContracts
 Extend contract for saleof acommodity by
continually extending afuturescontract.
 Will beHaving alater settlement date.
 Simultaneously opening thesameposition on
thecontract for thesamecommodity.
 Advantageisthat market getstheopportunity to
extend acontract for aspecified period for that
commodity, until it rendersalower price.

9. 4. Currency Futures
 Futurecontract to exchangeonecurrency for
another at aspecified futuredateat a
predetermined price.
 Contractsspecifiesthepriceat which currency
can bebought and sold on adelivery date.
 Foreign Exchangeraterisk can behedged by
buying foreign currency futuresfor required
amount and matching maturity .

10. 5. Currency Options
 Powerful tool for firmscarrying out cross
border transactionsinvolving foreign
currencies.
 Holder/Buyer hastheright to buy ir sell afixed
amount of underlying foreign currency at a
fixed rateon aspecified rate.
 Availablein F&O segment of organised
exchanges.
 Can takeadvantagesout of Call optionsby
exportersand importers

11. 6. Currency Swaps
 It isderivativecontract to exchangeone
currency or aloan in onecurrency with another.
 Fx agreement between two partiesto exchange
agiven amount in acurency for an equivalent
amount in another currency.
 On pre-set termsand adate.
 Curency Swap involves:
 Exchangeof Pricipal amount, interest payment
and reexchangeof principal amountsat thetime
of maturity.