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FOREIGN EXCHANGE RISK MANAGEMENT - Coggle Diagram
- FOREIGN EXCHANGE RISK MANAGEMENT
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Traded options
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Right to buy/sell at the end of Mar, Apr & May, etc
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Buy options in units of £31,250 contracts
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Swaption
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Bank will charge a premium, whether or not the option is exercised.
Currency swaps
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Potentially save interest if I borrow in £ & other company borrows in $ and then we swap interest payments
Swaps are generally arranged by banks = ‘dating agency’ - finding parties to swap
-The bank will arrange guarantees, but they will charge commissions for their service.
Disintermediarisation = large companies can arrange swaps directly with each other (and not using banks, thus saving costs)