The financial risk associated with foreign exchange is called Foreign exchange risk or currency risk. It is also called FX risk or exchange rate risk. The value of investment changes with the change in currency rate. The exposure to forex risk can affect organizations, big or small as it affects the assets and liabilities and hence the overall profitability. This also includes risk an investor would face while trading in the forex market, if there are open positions – long or short due to adverse exchange rate movement. With the forex market being a global one and functioning 24 hours – 5 days a week, this is likely to continue due to the socio-economic uncertainty. Thus to contain these fluctuations, one requires the forex advisory services.
The different types of risk associated with foreign exchange can be divided into transactional, translational or economic risk. These broadly refer to
- Transactional Risk – A company when exporting or importing any product or services deals with a foreign importer or exporter respectively. The transaction incorporates payment or receivables of foreign currency. The date on which the transaction is made may wary from the date of settlement. This risk is called transactional risk. On day of conversion, there can be a profit or loss which the corporate would have to bear.
- Translational Risk – if the corporate has assets and liabilities (A&L) denominated in a foreign currency, with the fluctuating exchange rates there will be a change in the value of A&L. This gives rise to translational risk.
- Economic Risk – If there are future cash flows of a company from foreign operations, the operating expenses and revenues tend to change too. This unanticipated change in forex rates causes the economic risk.
A well managed FX risk management policy would help the organization to mitigate such risks and not hurt the company’s revenue numbers. This is done by adopting hedging strategies to reduce the effect on the corporate cash flows. The spot, forward and options contracts aid in understanding the hedging tool which would be best for the corporate.
The Forex Advisory Services provide access to real-time currency rate information to the client in order to ensure transparent transactions when the client exchanges their receivables or payables with the banks. Many a times, the bank charges a margin over and above the currency rates. When there is no cross-check of real-time rates, the banks generally tend to quote a price in favor of the bank thus levying an extra margin to the client.
Apart from giving information through RateCheck, Myforexeye Forex Services also include RateAudit, foreign exchange risk advisory (FRA), transaction forex risk advisory (TFRA), transaction process outsourcing (TPO), corporate training services, etc. For retail clients, we even offer the money changing facility or money transfer services. They can travel for education or pleasure or medical needs and can choose to travel with a multi-currency forex card which is chip and pin protected.
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