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Foreign exchange risk prevention

2023/2/25 2:02:33  Classification:   Participation: 7  

What cashback forex rebates rebatemeaninginforexforex best forex rebate rebateinforextrading prevention Foreign exchange risk prevention refers to the foreign exchange market exchange rate changes that may occur in the enterprise to make appropriate decisions to reduce or eliminate the impact of foreign exchange risk on the enterprise foreign exchange risk prevention principles In the process of preventing foreign exchange risk, which method is more ideal, bestforexrebate to what extent the risk is reduced, involving a principle 1. the principle of least cost to use any one method to avoid foreign exchange risk. A method of hedging foreign exchange risk, you have to pay a certain cost, so in many ways, there is a specific choice of which method of cost comparison problem if the loss caused by suffering foreign exchange risk is less than the cost of prevention methods, then the use of such methods are not necessary For example, in order to avoid forward payments and the risk of appreciation of foreign currency exchange rates, enterprises often use the spot rate To measure the feasibility of this method, we must analyze whether the risk of appreciation of foreign currencies arising from forward payments is greater than the interest loss due to the purchase of spot foreign currencies in local currency. According to this principle, enterprises in the choice of various methods, should be based on the principle of conservatism, can not turn the enterprises financial activities into a bet, in order to earn a larger return and take radical risk measures 3. Scientific forecasting based on this requires the choice of specific operational methods, adhere to theoretical and practical, quantitative and qualitative, historical and future approach to the trend of exchange rate fluctuations extrapolated forecasts to ensure the accuracy and effectiveness of the implementation of the method of foreign exchange risk prevention means and methods in the foreign exchange market, some banks may never get involved in the foreign exchange market, some banks are active participants in the foreign exchange market some banks just limit themselves to be agents of foreign exchange transactions for companies or clients, while others are active traders themselves However, many banks limit their exchange rate risk based on experience or subjective judgment, a few banks try to use methods similar to interest rate risk management models for foreign exchange risk prevention How to avoid foreign exchange risk in international economic activities is a very important issue Since companies are different from Banks are different, not to earn foreign exchange differences for the purpose, therefore, it is necessary to start from their own business strategy, through the forecast exchange rate, choose the most appropriate value preservation measures to obtain operating profits and banks compared to the enterprise to prevent foreign exchange risk in a more flexible and diverse form (a) the means and methods of enterprise transactions risk prevention 1. the use of currency preservation measures Currency preservation measures refers to the buyer and seller in the transaction negotiations, after consultation In the process of contract implementation, if the payment currency exchange rate fluctuates, the contract amount will be adjusted in equal proportion, in accordance with the payment rate. If the exchange rate of the payment currency fluctuates, the amount of the contract shall be adjusted in equal proportion to the rate of the payment, so that the value of the currency to be received is the same as when the transaction contract was signed. In the international financial market, there are soft and hard currencies Hard currencies are currencies with stable exchange rates and tendency to float; soft currencies are currencies with unstable exchange rates and tendency to float. In the transaction process, choose the appropriate currency, is also an important way to prevent foreign exchange risk enterprises in the transaction process, the choice of currency should follow the following principles: (1) choose freely convertible currency according to the trend of exchange rate changes at any time in the foreign exchange market exchange transactions, transfer the currency exchange rate risk (2) pay foreign exchange with soft currency, receive foreign exchange with hard currency but In practice, the "soft" or "hard" of various currencies is not absolute, its soft and hard situation often changes, strictly speaking, this method sometimes does not ensure that economic entities from the loss of exchange rate changes in enterprises can not do "In order to avoid exchange rate risks, other value preservation tools can be adopted, such as forward foreign exchange trading, currency preservation clauses, etc. In short, enterprises should achieve both the principle and flexibility 3. The contract is signed, with the bank for the forward purchase (sale) of foreign currency contracts, trade settlement date for the contract delivery date, the contract exchange rate according to the corresponding period of the forward exchange rate predetermined 4. the use of international lending method International lending method refers to the medium and long-term international payments, the enterprise use of international credit, on the one hand, to obtain financing; on the other hand, to transfer or offset foreign exchange risk mainly export credit (1) export credit is the most commonly used in international trade, a form of capital financing, by the exporters bank directly or indirectly to the importing enterprises to provide advances, the purpose is mainly to promote exports by providing funds to the importer export credit has two kinds of buyers credit and sellers credit through export The exporters foreign exchange risk is transferred to the bank or offset by the way of export credit (2) the so-called "Fufei Yan" business, refers to the deferred payment of large machinery and equipment transactions, the exporter to list the importer as the payer of the medium and long-term bills of exchange, after the first-class bank guarantee and the importer accepted, sold to the exporting bank, to obtain the amount after deducting the interest discount (3) The bonding agent refers to the international trade, the exporter can not only fight for the importers bank to open a letter of credit to collect the payment, but also is not sure of the collection, that is, the way of discounting the importers payment due The documentary evidence of the resale to the bonding agent, get 80% of the receivables a 90%, the rest of the due collection as the exporter get most of the payment in advance, can reduce foreign exchange risk 5. the use of early or deferred settlement method early or deferred settlement method refers to the balance of payments, the enterprise by predicting the trend of changes in the exchange rate of the currency of payment, early or delayed receipt and payment of foreign exchange to reduce foreign exchange risk 6 The use of derivative financial instruments for hedging The use of derivative financial instruments for hedging, mainly including currency options, currency futures, swap foreign exchange transactions in three forms (1) currency options give the contract purchaser the right to buy or sell a certain amount of a certain currency at a specified price within a certain period of time The purchaser of the option contract has the right to execute the contract without the obligation to execute the contract, so that Enterprises can make their own choice of whether to execute the contract according to future changes in the exchange rate, thus achieving the purpose of foreign exchange risk prevention The disadvantage is that the amount and term is difficult to be fully consistent with the spot transaction, and also to pay a certain option fee (2) currency futures is actually the amount, term and expiration date are standardized forward foreign exchange contracts futures trading hedge is for a transaction in the spot market, the Futures market to do a transaction in the opposite direction, the same term, with the futures market profits to offset the losses in the spot market shortcomings is that futures contracts are standardized, in the amount and term is difficult to be fully consistent with the spot market, can not achieve the purpose of complete protection against foreign exchange risk (3) swap foreign exchange transactions is to buy a day delivery of currency A, sell currency B at the same time, sell in another trading day delivery of currency A, buy back currency B is characterized by the two foreign exchange transactions bought and sold in equal amounts, in opposite directions, different delivery dates (2) means and methods of enterprise translation risk prevention For translation risk, because the translation gain or loss is an accounting book profit or loss, generally does not involve changes in the true value of the enterprise, therefore, the translation risk is different from the transaction risk, this book risk mainly affects Shareholders and creditors to provide accounting statements but this translation gain or loss also reflects to a certain extent the foreign exchange risk assumed by the enterprise enterprise to prevent translation risk in two main ways: balance sheet neutralization and risk hedging (1) balance sheet neutralization requires enterprises to adjust assets and liabilities so that the amount of assets and liabilities expressed in various functional currencies are equal, so that the difference between the assets and liabilities at risk is zero  (2) Risk hedging method is through financial market operations, the use of foreign exchange contract gains and losses to offset the translation gains and losses but due to the existence of tax differences, risk hedging operations are sometimes difficult to effectively reduce the actual risk of enterprises (c) the means and methods of enterprise economic risk prevention Economic risk is a measure of the sensitivity of the enterprises future cash flows to potential changes in exchange rates, the main goal of its prevention is to isolate this impact therefore, the enterprise Therefore, according to the characteristics of production and operation, enterprises can choose the following measures to reduce economic risk 1. marketing strategy selection When the local currency appreciation, domestic products in the international market will be in an unfavorable competitive position, the domestic market is relatively large potential, enterprises should focus on the development of the domestic market 2. production adjustment strategy When the foreign exchange rate fluctuations are more violent, so that the above marketing adjustments will not help, enterprises should turn their efforts to 3. Financial strategy Financial strategy is to readjust the debt structure of the enterprise, so that when the exchange rate changes, the decline in the return on assets of the enterprise will be offset by the corresponding decline in the cost of settling the debt Multinational companies should transfer pricing and early transfer of the profits of the subsidiary expressed in local currency if it is expected that the currency of the country where the subsidiary is located will depreciate. transfer the subsidiarys profits expressed in local currency to the parent company. Conversely, when the currency of the country in which a subsidiary is located is expected to appreciate, the transfer of the subsidiarys profits to the parent company can be delayed, or even the profits of other subsidiaries can be transferred to the subsidiary by way of transfer pricing    

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