FX Forward Contract Fundamentals Forward contracts are by far the most prevalent foreign exchange derivative instrument used in the marketplace. A forward secures the value of an underlying position by providing 100% protection against unfavorable market moves beyond the “all in” forward rate, while giving up 100% of the participation in favorable market moves. A forward contract will almost always finish in either an asset or liability position at maturity depending on the ending spot rate. Forwards are easy to understand, widely available, and require no upfront premium. Forwards are particularly attractive for firms that seek a symmetrical payoff profile, where the hedge achieves largely equal and offsetting gains and losses related to the underlying foreign exchange exposure. Forward contracts involve the exchange of two currencies at an agreed upon rate on the date of the contract for settlement on a date more than two business days in the future. Forward contracts include both deliverable and non-deliverable forwards, which are also known as NDFs. A non-deliverable forward (NDF) is a cash-settled forward contract on a restricted or non-convertible foreign currency, as opposed to a deliverable forward which has the option of cash settlement or delivery of the currency. According to the Bank for International Settlements 2013 Triennial Central Bank Survey, daily trading volume in forward contracts reached $680 billion in April of 2013, accounting for 13% of total FX market volume, which is the highest percentage on record since the survey began. To explain the fundamentals of FX forward contracts, the following 6 minute video clip from FX Initiative’s newly released course titled “FX Spot & Derivatives” discusses the basic concepts of forward contracts, including forward points, the forward point equation, and the “all in” forward rate. Want full access? Click to subscribe today! If you found this information insightful, become a FX Initiative subscriber today and access our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com. Managing FX risk has become a higher priority for many firms for 2017 and it is now easier than ever to learn the fundamentals of currency risk management. Make this the year to reduce FX risk and reap rewards abroad by taking the FX Initiative for your international business today! Click here to subscribe > Cheers to your global organization's continued success in the new year, The FX Initiative Team support@fxinitiative.com February 6, 2017By FX Initiative FX Spot & Derivatives , Continuing Professional Education , CPE, Currency, Foreign Exchange, Forward Contracts, Hedging, Risk Management, Forward Points, FX 0 0 Comment
Identifying Direct vs. Indirect Currency Quoting Conventions It is evident that no one single world currency exists. There are over 180 currencies recognized as legal tender in circulation throughout the world. The most widely used list of currencies is known as ISO 4217, which is a standard published by the International Organization for Standardization or the ISO. The ISO is an international standard-setting body composed of representatives from various national standards organizations, and the ISO 4217 currency codes shown in FX Initiative’s Currency Code Locator are used in banking and business globally. The ISO 4217 currency codes are also commonly used when publishing exchange rate quotes in newspapers or banks to help delineate the different currencies instead of translating currency names or using ambiguous currency symbols. The most traded pairs of currencies in the world are called “The Majors”, and they include the euro, British pound sterling, Australian dollar, New Zealand dollar, United States dollar, Canadian dollar, Swiss franc, and Japanese yen. While someone new to the foreign exchange market might view published FX quotes similar to a stock or commodity price quotes, it is important to understand that foreign currencies differ because they are quoted in pairs using one of two currency quoting conventions, (1) a direct quote and (2) an indirect quote. A direct quote, also known as an American quote, is the domestic currency per unit of the foreign currency, and an indirect quote, also known as a European quote, is the foreign currency per unit of the domestic currency. Since currencies are always quoted in pairs, a currency quote will contain one currency on the left side of the quote known as the base currency, a forward slash in the center, and the other currency on the right side of the forward slash is known as the terms currency or the counter currency. The base currency is always equal to one unit, and the terms currency represents the number of units that equal one base unit of currency. To illustrate the concept of identifying direct vs. indirect currency quoting conventions visually, the following 6 minute video clip from FX Initiative’s newly released course titled “FX Market Overview” explains how market participants can understand and interpret the two different foreign currency quoting conventions appropriately. Want full access? Click to subscribe today! If you found this information insightful, become a FX Initiative subscriber today and access our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com. Managing FX risk has become a higher priority for many firms for 2017 and it is now easier than ever to learn the fundamentals of currency risk management. Make this the year to reduce FX risk and reap rewards abroad by taking the FX Initiative for your international business today! Click here to subscribe > Cheers to your global organization's continued success in the new year, The FX Initiative Team support@fxinitiative.com January 30, 2017By FX Initiative FX Market Overview CPE, Currency, Currency Code Locator, Direct, Indirect, ISO 4217, Continuing Professional Education, Convention, Foreign Exchange, Quote, Rates 0 0 Comment
Watch How Time Zones Impact Global FX Trading The enormity of the foreign exchange market is due to the fact that anytime foreign goods or services are bought or sold or international investment is made, companies, governments, and individuals may need to purchase the currency of the country or region in which they are conducting business. The foreign exchange market is decentralized, meaning there is no central marketplace where trading occurs. Participants in the foreign exchange market come from all over the world and trade at different times for different purposes. This worldwide network is connected through technology, and the time-zone differences between trading centers create a 24-hour market for FX trading. Using the data from the Bank for International Settlements 2013 Triennial Central Bank Survey, the following 5 minute video clip from FX Initiative’s newly released course titled “FX Market Overview” identifies the 3 major FX trading centers around the world and focuses on how the shift in time zones creates a rhythm in FX trading, with greater liquidity and volatility at certain times of the day. Want full access? Click to subscribe today! If you found this information insightful, become a FX Initiative subscriber today and access our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com. Managing FX risk has become a higher priority for many firms for 2017 and it is now easier than ever to learn the fundamentals of currency risk management. Make this the year to reduce FX risk and reap rewards abroad by taking the FX Initiative for your international business today! Click here to subscribe > Cheers to your global organization's continued success in the new year, The FX Initiative Team support@fxinitiative.com January 23, 2017By FX Initiative FX Market Overview American, Asian, Continuing Professional Education, Currency, European, FX, Liquidity, Market, Risk Management, Time Zones, 24/7, CPE, Foreign Exchange, Trading, Volume 0 0 Comment
Exposing Apple's FX Transaction Risk Apple is the most valuable company in the world, and in 2015 impressively captured not only the largest market cap, but also the largest sales, profits, and assets among the world's biggest technology companies. -Forbes, "The World's Largest Tech Companies: Apple Beats Samsung, Microsoft, Google" As a result, it's no surprise that many businesses look up to Apple to follow their lead in terms of research and development, manufacturing, and sales among other areas of innovation. However, many multi-national firms can also benefit greatly from observing Apple's best practices as it relates to identifying and managing foreign currency transaction risk. Apple’s unaudited summary financial results for the fiscal 2015 fourth quarter revealed that international sales accounted for 62 percent of the quarter’s revenue, which totaled $51.5 billion dollars. This highlights that in a matter of 3 months, the equivalent of almost 30 billion US dollars worth of product was sold overseas, and more than half of their revenue in a single quarter was generated from outside of their headquarters in the United States. Apple's sizable revenue generation is just one component of their foreign exchange risk profile. Taking a more comprehensive view of Apple's foreign exchange risk profile, the following 7 minute video clip from FX Initiative's newly released course titled "FX Risk Exposures" exposes the various types of foreign currency transaction risk inherent in Apple's global business model. Want full access? Click to subscribe today! If you found this information insightful, become a FX Initiative subscriber today and access our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com. Managing FX risk has become a higher priority for many firms for 2017 and it is now easier than ever to learn the fundamentals of currency risk management. Make this the year to reduce FX risk and reap rewards abroad by taking the FX Initiative for your international business today! Click here to subscribe > Cheers to your global organization's continued success in the new year, The FX Initiative Team support@fxinitiative.com January 9, 2017By FX Initiative FX Risk Exposures Apple, Continuing Professional Education, CPE, Currency, FX, International Business, Risk Management, Transaction Risk, foreign exchange 0 0 Comment