Posted by Daytrader on July 15, 2009 under Uncategorized | 
Forex trading transactional dealings of a bank with its customer is called as merchant business and the rate of exchange at which the transaction takes place is the rate of merchant. The merchant business in which the contract with the customer to buy or sell Forex trading is agreed to and executed on the same day is called as ready or cash transactions. As in the case of transactions of interbank, a value next day contract is deliverable on the next business following the date of the contract. Most of the transactions with customers are on ready basis. The terms spot and ready are utilized synonymously to refer to transactions concluded as well as executed on the same day. At first, the concept of transactions of exchange that was discussed under trading Forex markets is repeated here in the perspective of merchant transactions to reorient as well as reinforce the learning.
Trading Forex dealing is a business in which foreign currency is the commodity. Trading online was seen earlier that foreign currency is not a legal tender. The United States dollar cannot be used for settlement of debts, nevertheless, it has value. The value of United States dollar is like the value of any other commodity. Therefore, the foreign currency can be considered as the commodity in Forex trading dealings.
Any trading online has two aspects are purchase and sale. A buyer has to buy goods from his dealers which he sells to his customers. Similarly, the bank that is approved to deal in real trading online sells as well as purchases its commodity. The points need to be constantly kept in mind while talking of a real trading online transaction. The business deal is always talked of from the bank’s point of view and the item termed to is the foreign currency. Therefore, we can say a purchase, we imply that the bank has purchased and it has purchased foreign currency. Similarly, when we say a sale, we imply that the bank has sold and it has old foreign currency.
We have seen that the rates of exchange can be quoted in either of the two ways. They are direct quotation and indirect quotation. The quotation in which rate of exchange is expressed as the price per unit of foreign currency in terms of the home currency is called as home currency quotation or direct quotation. The quotation in which the unit of home currency is kept stable and the rate of exchange is expressed as so many units of forex currency is called as foreign currency quotation or indirect quotation.
Therefore, when the bank buys Forex online from the customer, it expects to sell the same in the market of interbank at a better rate and this make a profit out of the deal. Thus, the interbank buying rate forms the bass for quotation of buying rate by the bank to its customer. Similarly, when the bank sells Forex online to the customer, it meets the commitment by purchasing the required foreign exchange from the interbank market. It can acquire foreign exchange from the market at the market selling rate.
Posted by Ilikepips on under Forex Trader Review |
Forex trading exposure management is far more difficult than managing accounting exposure. In accounting exposure, the risk involved can be easily measured as well as provided for economic exposure is uncertain as well as strategies have to be framed as situation evolves, rather than anticipating as well as providing for them. Economic exposure affects the vehicle, production and sales that make these possible through the medium of finance. Therefore, the strategies of Forex trading exposure management are also around these functions such as marketing, production and finance.
Marketing strategies of trading Forex to manage exposure management may comprise of market selection, pricing and product decisions. A company with trading Forex markets in different countries may adopt market selection as a strategy when faced with rate of exchange variations. It may shift its emphasis from the market whose currency has depreciated to those whose currencies have appreciated.
Pricing decision is a multifaceted phenomenon and mainly depends on the elasticity of demand for the product and the competition faced by the company. Pricing involves consideration as:
- How frequently can the price be changed?
- Whether to retain the market retain or share the profit margin.
The choices available to the company to retain the profit margin or market share in the wake of rate of exchange variations. The decision has to be taken by the company depending upon various factors like the product life cycle, how long the change will persist, ease of entry for competition, consumers sensitivity, etc. The company’s aim should be to maintain the overall profits, not losing sight of the long term perspective of the decision taken.
Rate of exchange variations may have an impact on the timing of launching of a new product. The ideal time for launching the product in the trading online will be when the home currency has depreciated. The time will also be suitable for expanding the product like as well as cover wider customers. Product innovation as well as product adaptation is other methods adopted to add value to the product and catch the elite segment for cost may not be the major factor in trading online.
In production strategies of Forex online, multinational companies with production as well as sourcing bases in different countries can manage the economic exposure by choosing the right production as well as sourcing bases.
In financial strategies of Forex online consist in minimizing the cost of borrowing by sourcing at the cheapest market and matching liabilities and assets in a currency so that the effect of rate of exchange change is neutralized. These manipulations can be done relatively easily by a multinational company which has access to different markets.
Thus, Forex trading exposure is readily recognized as well as provided for by the Forex companies. The classical method used is the forward contract. Real trading online has wider ramifications, but least recognized. With the greater awareness, companies are now devoting more time in exposure management. In the world of competition as well as liberalization, the growth and survival of business enterprises depends significantly on real trading online on how well they recognize and manage effectively the risk of exchange as well as exposure.
Posted by Arthur on under Forex Trader Review |
Economic exposure or operating exposure in Forex trading relates to the effect of unexpected rates of exchange on the future operating cash flows of the company. In the management of finance, a firm is valued by the net present value of the future cash flows. A change in the rate of exchange may bring about changes in the cash flows of the company directly by reflecting its revenues as well as costs and indirectly by affecting its competitiveness by the action of its consumers as well as competitors. As a result, the net present value may differ from the one anticipated.
The economic exposure in Forex trading is less clearly perceived but has wider ramification with far reaching effects than the accounting exposure. Accounting exposure of trading Forex is more readily seen and provided for. Economic exposure in forex trading is insidious, more difficult to measure as well as more difficult to manage.
Economic exposure in Forex online, we talk of unexpected changes in the rates of exchange because the expected changes are reflected in the quotations of market in the form of forward margin as well as it is taken note by the companies. In budgeting for the future, a company with Forex online exposure will base its calculations on the forward rates and not on the spot rates. Therefore, it is only the unexpected movements in the rates of exchange that affect the cash flows anticipated in trading Forex.
Real trading online rate of exchange between two currencies is the nominal rate of exchange adjusted for difference in the rate of inflation in the countries concerned. If the power of purchasing parity holds, the currency of the countries with inflation higher will depreciate in nominal terms, but the relating power of purchasing of the currencies will remain the same. In other words, the real trading online rate of exchange will not change.
If the trading online rate of exchange remains static, even though there is a change in the nominal rate of exchange, the cash flows of the company will not be affected. This is because the relative powers of purchasing of the currencies remain the same. There is no change in the competitiveness of the product due to price fluctuations.
In certainty, it is seen that the power of purchasing parity holds only in the long run. In the short run, the rates of exchange tend to vary in real terms giving rise to economic exposure.
Thus, the exact impact the rate of exchange change will have on the cash flows of the company is dependent on so many factors, measuring economic exposure becomes difficult. Many are the factors over which the company has no control. All that is possible is to estimate with certain basic assumptions regarding the impact likely on each item of the cash flow of the company. Following are the some of the assumptions of trading online that can be made:
- Costs will decrease or increase; sales price remains constant.
- Volume of the sales will decrease or increase; sales costs and price remains constant.
- Price of the sales decreases or increases; costs will also decreases or increases but by a lesser degree.
- Price of the sales decreases or increases; costs will remain the same.
- All variables remain the same.
Posted by TomShort on under Daily Forex review |
Dealings between Forex trading divisions of bankers’ deals refer to purchase and sale of trading online between the banks. In other works, it also refers to the forex trading dealings of a bank in the interbank market.
Purchase as well as sale of foreign currency in the market undertaken to dispose or acquire of trading online acquired or required as a result of its dealings with its customers is called as the cover deal. The purpose of cover deal is to insure the bank against any variation in the rates of exchange.
We have seen that in quoting a rate to the customer the bank is guided by the rate of interbank to which it deducts or adds its margin, and arrives at the rate it quotes to the customer. For instance, if it is buying dollar from the customer spot, it takes interbank buying rate, deducts its exchange margin as well as quotes the rate. This exercise is done on the assumption that immediately on purchase from the customer the bank would sell the real trading online to interbank market at market buying rate.
Since the real trading online currency is an irregular commodity with wide range of fluctuations in cost, immediately the bank likes to sell whatever they purchased and whenever they sell it goes to the market and makes an immediate purchase to meet its commitment. In other words, the bank would like to keep its stock of real trading online near zero. The main reason for this is that the bank needs to reduce the risk of exchange that it faces to the minimum. Or else, any unfavorable change in the rates would affect its benefits.
In the case of spot deals the operations is quite simple. If the bank has purchased $10,000, if would endeavor to find another customer to whom it can sell this. If it succeeds, the profit would be the maximum because both selling and buying rates are determined by the bank and the margin between the rates is the maximum. If it, cannot find another customer, it sells in the interbank market where the rate is determined by the market conditions. The margin is narrower here.
Trading Forex refers to sale and purchase of Forex in the market other than to cover bank’s business dealings with the customers. The purpose may be to gain on the expected changes in the rates of exchange. Funding of nostro account of the bank is done by realization of trading online in the relevant currency purchased by the bank. If sales exceed purchases to avoid overdraft in the nostro account, the bank would purchase the requisite trading Forex in the interbank market and arrange for its credit to the nostro account.
Thus, some of the foreign banks who maintain nostro accounts with the bank may fund the account by arranging remittance through some other bank. When required to quote a rate for this business deals, the bank would quote the rate at which it could dispose of the trading online, that is, the market buying rate. Margin of exchange may not be taken for such business deals.
