While holding cash can provide a number of benefits to a business, there are also costs associated with holding cash in business, including: Overall, the cost of holding cash depends on a variety of factors, including interest rates, inflation rates, and the specific needs and circumstances of the business. Businesses must carefully weigh the benefits… Read More »
There are several reasons why businesses may choose to hold cash, including: Overall, holding cash can provide businesses with financial stability and flexibility, allowing them to weather unexpected events and take advantage of opportunities when they arise.
Liquidity management refers to the process of managing and monitoring the availability and use of cash and other liquid assets in order to meet a company’s financial obligations and maintain financial stability. Effective liquidity management involves ensuring that a company has sufficient cash reserves to cover its short-term expenses and debts, while also optimizing the… Read More »
Floating Exchange Rate Definition Free floating or Clean floating of a currency occurs when its exchange rates are left free to be determined by the market forces of demand for and supply of that currency in foreign exchange market with no floor or ceiling vis-à-vis the dollar, gold, SDRs, or any other currency. The government… Read More »
Control and Monitoring of Exchange Position As a matter of policy each bank establishes “limits” for various levels.in case a bank has more centers dealing in foreign exchange, the limit is allocated to each center. Such limits are periodically reviewed and revised.in the event of a special situation arising interim limits are approved for a… Read More »
Foreign Trade Risks Why is foreign exchange risk so important today? there are three broad reasons: i. The growth in international trade and financing. ii. The increased magnitude of exchange rate fluctuations. iii. The increasing visibility of the foreign exchange gains/loss items in corporate financial statement. The first two factors are the source of the… Read More »
The calculation of profit or loss on net foreign exchange position is carried out monthly through what is termed as month-end revaluations. A simple but effective method to calculate separately the profit or loss on the spot position and on the forward position currency is outlined below: ii. if the net position is overbought, the… Read More »
As a matter of policy each bank establishes “limits” for various levels.in case a bank has more centers dealing in foreign exchange, the limit is allocated to each center. Such limits are periodically reviewed and revised.in the event of a special situation arising interim limits are approved for a given transaction or a limited period.… Read More »
There may be situations wherein counter-parties to the underlying trading contracts may insist that importers or exporter provide guarantees of highly reliable third parties about the ability of the importers or exporters to complete the underlying contracts, and the event of failure of the importers or exporters to do so, pay compensation to the counter-parties.… Read More »
There are two basic types of options: Put Option and Call Option CALL OPTION: This option gives the buyer the right to purchase or “call away” a specified amount of the underlying foreign currency at a specified price up to a specified date. The price at which the foreign currency may be bought is the… Read More »