Tips For Selecting A Forex Broker

Are you looking to make the most of your foreign exchange (forex) investments? Choosing a reputable forex broker can be an essential investment decision, so it’s important to understand what makes a reliable broker before selecting one. As you search for the perfect forex broker to meet your needs, many factors must be considered to ensure success.

This article will help you find and select an experienced and trusted forex broker who meets all your financial needs. With this critical information, you will have an easier time deciding which forex broker is best for you and providing assurance when investing in the global currency market.… Read the rest

Top Four Technical Tools Pro Traders Use

Traders need to develop their technical skills to perform properly. But, some traders don’t focus on improving their skills and thus face failure. Being a trader, if you don’t take the steps to improve your technical skills, you might face big troubles. However, pro traders know and ins and outs of the technical tools and indicators. And so, they can use it properly. But, newbies can’t use them properly as they don’t know about them. But, without knowing about the applications of these, you can’t trade with precision. That’s why you should use the demo account to improve your technical skills.… Read the rest

Foreign Currency Swap or Foreign Exchange Swap

Each entity has a different access and different needs in the international financial markets. Companies receive more favorable credit ratings in their country of domicile than in the country in which they need to raise capital. Investors are likely to demand a lower return from a domestic company, which they are more familiar with than from a foreign company. In some cases a company may be unable to raise capital in a certain currency. Currency swaps are also used to lower the risk of currency exposure or to change returns on investment into another, more favorable currency. Therefore, currency swaps are used to exchange assets or capital in one currency for another for the purpose of financial management.… Read the rest

Pricing of Futures Contracts Using Interest Rate Parity in Forex Trading

According to the interest rate parity theory, the currency margin is dependent mainly on the prevailing interest rate (for investment for the given time period) in the two currencies. The forward rate can be calculated by the following formula:

F/S = (1+Rh)/ (1+Rf)

Where, F and S are future and spot currency rate. Rh and Rf are simple interest rate in the home and foreign currency respectively.

Alternatively, if we consider continuously compounded interest rate then forward rate can be calculated by using the following formula:

F = S*e (rh- rf)*t

Where, rh and rf are the continuously compounded interest rate for the home currency and foreign currency respectively, T is the time to maturity and e = 2.71828 (exponential).… Read the rest

Hedging with Foreign Currency Futures

Exchange rates are quite volatile and unpredictable, it is possible that anticipated profit in foreign investment may be eliminated, rather even may incur loss. Thus, in order to hedge this foreign currency risk, the traders’ often use the currency futures. For example, a long hedge (i.e., buying currency futures contracts) will protect against a rise in a foreign currency value whereas a short hedge (i.e., selling currency futures contracts) will protect against a decline in a foreign currency’s value.

It is noted that corporate profits are exposed to exchange rate risk in many situation. For example, if a trader is exporting or importing any particular product from other countries then he is exposed to foreign exchange risk.… Read the rest

Translation Exposure in Terms of Foreign Exchange Risk

Consolidation of financial statements, which involve foreign currency denominated assets and liabilities automatically, gives rise to translation exposure, sometimes termed as accounting exposure. Consolidation of foreign subsidiaries account into group financial statements denominated in home currency requires the application of a rate or rates of exchange to foreign subsidiaries accounts, in order that they may be translated into the parent currency. Both balance sheets and income statements must be consolidated and they both give rise to translation exposure. Translating foreign currency profit and loss accounts at either the average exchange rate during the accounting year or at the exchange rate at the end of the accounting year (both methods are currently permissible as per British accounting procedures) will mean that expected consolidated profit will vary as the average or that the expected closing rate changes.… Read the rest