In a commodity market, the prices undergo considerable degree of fluctuations. The reasons for price fluctuations may be crop failure, bad weather and demand-supply imbalances. These fluctuations in turn lead to price risk. This price risk is largely borne by the farmers and industries where agricultural commodities are used as raw materials. If the participants hedge against this price risk, [...]
The following points highlight the four main categories of swaps between corporate borrowers. The categories are: 1. Principal-Only-Swaps 2. Interest Rate Swaps 3. Currency Swaps 4. Carry Trade Swap. Category # 1. Principal-Only-Swaps: These are typically used for hedging loan transactions. If a corporate borrowers in Yen and wants to swap the loan into US$ or Rupee, it could opt [...]
In this article we will discuss about:- 1. Meaning of Forward Exchange Contract 2. Closing Out of Forward Exchange Contracts 3. Extension of Forward Exchange Contracts 4. Cost or Gain of Forward Cover 5. Benefits and Drawbacks of Forward Exchange Contract. Meaning of Forward Exchange Contract: A forward contract is simply an agreement to buy or sell foreign exchange at [...]