Businesses that in their regular operation have import-export relations with foreign companies are exposed to currency risk permanently – risk against change of exchange rate, before all, due to extreme volatility of FX market.
Scope of the FX market is at the historically highest level and is incomparable with the scope of the remaining market instruments (stocks, corporate bonds shares etc.). High scope of trading is also resulting in high volatility of the FX market under terms of market uncertainty.
Change of prices at the foreign market may have significant influence over the cash flows of companies whose businesses are import-export dependable. Under circumstances when the businesses have liabilities or receivables in foreign currency to become due in near time or planned investments for which assets are to be allocated in near future, it is of extreme importance for the companies to mitigate the currency risk and protect against losses on the account of exchange rate differences. FX Forward, i.e. spot FX transaction is used as an extremely flexible instrument for dealing with the currency risk. Continue reading “FX Forwards and their application- magazine Economy and Business”