Forward contracts-foreign exchange risks, Marketing Research

Assignment Help:

Forward Contracts : As you have learnt that entering into forward contract is one of the important method of dealing with the foreign exchange risk. Let us also remind you that in forward contracts two parties enter into the contract for selling or buying of foreign currency in future.

The banks are willing to provide forward cover for the risks arising out of fluctuations in exchange rates to both the importers and exporters. Let us understand it with the help of an example. If the exporter expects to receive, say, dollars after three months, he can approach his banker to purchase dollars forward for him at the forward rate prevailing on the day of the contract. This way he will ensure his export proceeds In terms of rupees. Of course, he will lose possible benefits of any appreciation of dollar by so covering his risk. But the exporter is basically interested in making a profit on exports and not a profit on fluctuations in exchange rates which is the business of speculators in foreign exchange.

Similarly, an importer expecting to make a payment, say, in dollars after three months, can approach his banker to sell him dollars forward at the forward rate prevailing on the day of the contract. This way he will ensure the rupee cost of his imports. Of course, like an exporter, he will lose possible benefits of a reduction in his cost due to depreciation in dollars.

Forward contra& do have a cost. The banks will charge some commission. In addition, they will take into account the premium or discount the forward rate has over the spot rate. Again, a forward contract is a contract which has to be fulfilled by delivering or purchasing the foreign exchange from the bank exactly at the due date. In case it is not done, the exporter importer will have to pay penalty/compensation to the bank.

The banks, however, allow the exporter to have an option forward contract in place of a fixed forward contract. In fixed forward contracts, foreign exchange has to be delivered on the fixed day. In real situations, it may not be possible to do so. At best, you can estimate the probable date. To obviate this difficulty, the customer may be given a choice of delivering foreign exchange during a given period of time. This IS called an option forward contract.  Rate is known as the option forward rate period is known as option period. Let us discuss them in detail.


Related Discussions:- Forward contracts-foreign exchange risks

Errors in the research process, While undergoing the steps involved in the...

While undergoing the steps involved in the research process the researcher should ensure that the research does not have a high degree of error. If no care is exercised in m

Special contracts-export sales contract, SPECIAL CONTRACTS : You have lear...

SPECIAL CONTRACTS : You have learnt that the applicable law can be the law of either party or that of a third party. It will be the Indian Contracts Act, if Indian law will apply.

Evaluating awareness and potential for IMC in b2b in pune, what will be the...

what will be the scope for the above study for imc in b2b market domain and SWOT analysis,future growth and prospects of the study

Analyse how globalisation influenced policies of a bank, Critically evaluat...

Critically evaluate the impact of globalisation (i)  Analyse how globalisation influenced policies and decision making on State Bank of India. (ii) Critically undertake the u

Retailing, how do beliefs and attitudes influence consumer behavior

how do beliefs and attitudes influence consumer behavior

Design of a specific marketing research methodology, Question 1: "Marke...

Question 1: "Marketing Research is a systematic and planned formal approach to the collection of marketing information." This implies that there is a formal marketing research

Survey report, How do customers feel about service charges? and can you exp...

How do customers feel about service charges? and can you explain it by demographic characteristics?

Conclusive research, This enable the decision maker to select the most app...

This enable the decision maker to select the most appropriate course of action. This needs more care and efforts. If validates or verifies the expected outcomes of each hyp

Consumer behavior, You are the member of an advertising team assembled to d...

You are the member of an advertising team assembled to develop a promotional campaign for a new digital camera. Develop three headlines for these campaigns each based on one of the

Describe the term - materials, Describe the term - Materials Materials...

Describe the term - Materials Materials department uses research to create suitable policies regarding. Where to buy? How much to buy? When to buy? At what pric

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd