The aim of this paper is to analyze if the financial crisis has changed the use of hedging techniques. Forecasting is the process of estimation of unknown situations. Forecasting is use to estimate a risk. It can be exchange rates risks, economic exposure, translation exposure, etc. In this chapter I'll expose some forecasting techniques related to the exchange rate or transaction exposure. The technical forecasting involves the use of historical rate data and with this data, to predict the future exchange rate. This technique is very popular because of the ease of use. However, this technique can be criticized because the future exchange rate doesn't depend on the past but on the future events and information. But speculators use it in order to capitalize on the day-to-day exchange rates.
[...] But the action of the speculators will in itself increase the demand of the currency and put the exchanges rates higher. Forward rates: This technique provides a future spot rate in by example 30 days. It is used for preparing contracts now that will be paid in one or three months. Hedging Like I said before there are three major exposures to the exchange rate fluctuations. I'll focus on the transaction exposure and the ways of hedging this kind of exposures. A transaction exposure is characterised by an anticipated future cash transactions that can be affected by exchange rate fluctuations. [...]
[...] But like for the call option you aren't oblige to use the option. So you avoid the risk without scarifying the possible profit. Effects of the subprime crisis on the use of hedging The sub primes crisis is related to the global depreciation of the American estate market and the impossibility for the Americans to pay their loan back. As a result a lot of banks had to recalculate the value of the houses they had financed. They had to act depreciations of their assets. [...]
[...] Every company who was dealing with other currencies faced a higher risk and potential profit. According to these to fact we've seen on one hand a stable volume of hedging action by options, future and forward hedging but with a higher total amount of money. And on the other hand a decrease of use of the money market for hedging currency risks. Conclusion As a conclusion we can say that there where two different impacts of the subprime crisis on the [...]
[...] If you don't want to take the risk of loss you can implement a hedging strategy in order to reduce or eliminate it. Different techniques of hedging Before describing the different techniques of hedging it is important to notice what a company should do before making the decision of hedging and how to do it. First the business must identify the transaction exposure. Then it has to decide if hedge or not the risk and finally decide which technique use to cover a part or totally the exposure. [...]
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