Category Archives: Corporate Finance

CONTROL AND MONITORING OF EXCHANGE POSTIION

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 »

International Guarantees

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 »

Types of Options

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 »

Foreign Currency Options

We have examined the two main methods of covering an exchange rate fluctuations risk i.e. The traditional forward exchange contract, and The currency futures contract. An option is an agreement between two parties. One party grants the other the right to buy or sell an instrument under certain conditions. The instruments may be a stock,… Read More »

Buying and Selling Foreign Currency Future

Mechanics of buying and selling foreign currency future Foreign Exchange Futures: Let us assume that in January an importing firm requires Swiss Franc 125,000 in three-month time. It purchases a SF12500 future contract through a broker at the rate of SF1 = $0.6600. the contract’s current value would be ($0.66SF  SF125000) U.S, $82500. It would… Read More »

Financial Futures Market

These are the markets that were “derived” from other markets. The first financial future contracts were derived from the foreign exchange market. A financial future contract is a contract to deliver or take delivery of a financial instrument at a future date. In some cases where delivery is difficult, the contract may be settled by… Read More »

Forward Contracts and Futures contracts

Forward contracts versus Future contracts Commodity brokers use forward and futures contracts for which reason? Points of difference between forward contracts and financial futures are as under: Forward contracts are available in any amount, small or large, whereas financial future contracts are in standard size. Forward contracts are meant for bonafide trade transactions whereas in… Read More »

Advance Payment Guarantee

Advance Payment Guarantee A contractor who is awarded a contract may ask for advance payment in order to  start the project. The project sponsor will, for this purpose, require an Advance Payment guarantee to the effect that the contractor will perform his contract and if he fails, he will refund to the project sponsor the… Read More »