Foreign Exchange & Risk Management (FM04)

Table of Content

UNIT I: Foreign Exchange and Foreign Trade, Exchange Rate, Foreign Exchange as stock, Balance of Payments, Balance of Payments accounting, Components of Balance of Payments; Current Account, Capital Account, Official Reserve Accounts, Debit and Credits Entries, International Exchange Systems; Fixed and Floating Exchange rate system. Exchange Rate System prior to IMF; Gold currency standard, Gold bullion standard, Gold exchange standard, Exchange Rate System under IMF: Bretton woods system, The Smithsonian Agreement, The Flexible Exchange Rate Regime.
UNIT II : Convertibility of rupee; Current account convertibility, Capital Account Convertibility; Theories of Foreign exchange rate: Purchasing power parity (PPP), International Fisher Effect (IFE), Interest Rate Parity (IRP); Administration of Foreign Exchange; Authorized persons, Authorized dealers, Authorized Money Changers; Foreign Currency Accounts: Nostro Account, Vostro Account and Loro Account in foreign transactions.
UNIT III : Foreign Exchange Transactions; Purchase and sale transactions; Exchange quotations: Direct and Indirect Quotations, Two way Quotation; Spot and Forward Transactions: Forward margin, Factors Determining forward margin; Merchant Rates: Basis of Merchant Rates, Types of buying and Selling rates, Ready rates based on cross rates; Forward exchange contract: Fixed and option forward contracts, Calculation of fixed and option forward rates; Inter Bank Deals; Execution of forward Contracts.
UNIT IV : Exchange Dealings: Dealing position- Exchange position, Cash Position; Accounting and Reporting: Mirror account, Value date, Exchange profit and loss, R returns; Forex Risk Management: Risk in Forex Dealing, Measure of Value at Risk; Foreign Exchange markets; Settlement of Transactions: Swift, Chips, Chaps, Fed wire.
Unit V : Exchange Risk: Exchange exposure and exchange risk; Transaction Exposure, Managing Transaction exposure: External Hedge-Forward contract hedge, Money market hedge, hedging with futures and options, Internal Hedge; Translation exposure, Methods of translation, managing translation exposure; Economic exposure, managing economic exposure; Interest rate risk.