Kalender

September 2021
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An Agreement To Exchange Currencies Sometime In The Future

According to Le Parameswaran (2011), the derivative erases each other if we recognize the impact of exchange rates on the value of the debtor. In this case, the difference between the debtor and the profit of the derivative is attributed to the other party at the debtor`s spot interest rate and the derivative`s forward rate (Ltd, 2017). The first currency futures contract was created in 1972 on the Chicago Mercantile Exchange and is today the largest money futures market in the world. Currency futures are put on the market on a daily basis. This means that traders are responsible for having enough capital in their account to cover the margins and losses resulting from acquiring the position. Futures traders may terminate their obligation to buy or sell the currency before the date of delivery of the contract. This is done by closing the position. By applying the methodology, such an entity can mitigate the effects of these changes in the business entity`s reported cash flows and income. Risk can be avoided by entering into an agreement with a commercial entity to sell or buy the foreign currency at an approved price at a given time (Walmsley, 2000).

In this regard, both parties must correspond to the date on which the currency should be received. These agreements are concluded through the bank where each contract is linked to a particular transaction or sometimes uses a number of contracts to cover a pool of transactions (Parameswaran, 2011). A currency swap can be done in different ways….

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