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Does currency risk impact your investments? 3 ways you ... - 4/23/2018 3:16:57 AM   
priyapatel

 

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Does currency risk impact your investments? 3 ways you can hedge your exposure.

In general, if implied volatility is higher than historical volatility it gives some indication that option prices may be high. If implied volatility is below historical volatility, this may mean option prices are discounted.

The 1997 East Asian economic crisis and 2008 Great Financial crisis made apparent how vulnerable currencies can be. It also made apparent the need for firms to manage foreign exchange risk.

Many individuals, firms and businesses found themselves under great trouble in the wake of drastic exchange rate movements. Foreign exchange risk refers to the uncertainties faced due to fluctuating exchange rates.

Why currency hedging is important? And how it can be hedged?

Un-hedged exposure of forex (FX) can affect firm's balance sheet or profitability, which can create cash outflow and operational issues. Hedging reduces a firm's exposure to unwanted risk. This helps in sustaining profits, reducing volatility and ensuring smoother operations.

Foreign currency exposures must be divided into monthly, quarterly, half-yearly and yearly basis. Short-term exposures up to, say, confirm orders be fully covered with forward or future contracts, and after that the strategy of partial hedging may be used to deal with volatility in the dollar-rupee rate.


Further, Derivative can be used with the combination of risk management and technical analysis. Forward or option strategy with pre-defined limiting risk strategy like stoploss based on technical chart observation would be ultimate hedging strategy.

This will also help to mitigate costing levels, especially in the time of higher volatility in the currency.


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RE: Does currency risk impact your investments? 3 ways ... - 12/2/2018 6:22:48 AM   
kiranyadav

 

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Yes Currency Risk impact on investment.

You can see more details on my page.

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