Premium Essay

Foreign Exchange Risk Management in Banking Sector

In: Business and Management

Submitted By rockya835
Words 7675
Pages 31
Chapter 1: Introduction

1.0. Introduction
The term “foreign exchange” basically refers to buying the currency of one country while selling the currency of another country. All nations have their own, different kinds of money (currency). This has existed throughout the ages, probably since the time of the Babylonians. As trading developed between nations, the need to convert one kind of money to another also developed. This is how a formal system of foreign exchange arose. As trade between nations developed, Britain, as the nation with the largest and strongest navy, could spread its commercial interests far and wide. It therefore became the most active trading nation, with a vast empire of colonies. As a result, Britain’s currency, the pound sterling, became a benchmark to which other currencies were compared (and exchanged) for most of the seventeenth, eighteenth and nineteenth centuries. Today, most currencies are compared to the U.S. Dollar, currently the most active and commercially strong trading nation; many currencies are still “pegged” to the U.S. Dollar for their exchange rate.
Because FX risks can be identified, they can be managed. Foreign exchange management requires that governments, companies, and individuals understand the factors that influence the valuation of currency. By identifying these factors, they can enter into transactions that mitigate the risks to acceptable levels. These transactions, or hedge positions, are designed to maximize the economic benefit of foreign exchange receipts, and payments for governments, multinational companies, or individuals

1.1. Foreign Exchange
Foreign Exchange (FX) is the conversion of currency of one country to the currency of other country whereas foreign currency is any currency other than the country’s own currency.

1.2. Foreign Exchange Market
Foreign Exchange Market is a market where the...

Similar Documents

Premium Essay

The Mauritian Financial System

...INTRODUCTION The Mauritian Financial services sector has witnessed a rapid growth since recent years and it is now one of the main pillars of the economy. The sector has stepped up its role in the economy partly due to the government support to the industry. Mauritius has therefore proved to be a leading international Financial Centre for Asian and African investments. The newly launched Global business sector backed by a growing banking sector and a profitable stock Exchange in the early 1990’s strengthened the Mauritius International Financial Centre. The Mauritian Financial services sector consists of banking, global business, insurance and re-insurance and other non-banking financial intermediaries. This is better explained below: The Mauritian Financial Services Sector Banking (regulated by Bank of Mauritius) Non-banking -Banks of Mauritius (regulated by FSC) -Foreign Exchange Dealers - Stock Market - Insurance sector -Global business sector ...

Words: 6505 - Pages: 27

Premium Essay


...any information retrieval system, electronic or mechanical, without the written permission of the publisher. All inquiries should be emailed to ISBN (13) : 978-81-224-2622-9 PUBLISHING FOR ONE WORLD NEW AGE INTERNATIONAL (P) LIMITED, PUBLISHERS 4835/24, Ansari Road, Daryaganj, New Delhi - 110002 Visit us at Dedication Dedication To my dear children Raghu, Suren and Rajasri who have done me proud by excelling in their chosen fields This page intentionally left blank PREFACE TO THE SECOND EDITION Since the publication of the first edition of this book five years ago several developments covering the money market, the government securities market and the foreign exchange market have taken place to strengthen their integration and enhance their efficiency. Efficient settlement mechanisms, greater transparency and best market practices are put in place, which facilitate faster transactions and lower their costs. Efforts have been concentrated on improving the credit delivery mechanisms. Although the Narasimhan Committee on the Financial System (1991) recommended the phasing out of the directed credit programme at 10 per cent of the bank credit not only the proportion has been retained at 40% level but its coverage has been considerably enlarged. The appropriate instrument to achieve distributive justice is fiscal policy not credit policy. Fiscal policy ensures the scrutiny of budget provision at......

Words: 132665 - Pages: 531

Premium Essay

Regulators in India

...------------------------------------------------- Regulators In India * Reserve Bank of India(RBI) * Securities Exchange Board in India(SEBI) * Insurance Regulatory Development Authority(IRDA) * Financial Intelligence Unit (FIU) * FSDC OVERVIEW A regulator is a public authority or government agency responsible for exercising autonomous authority over some area of human activity in a regulatory or supervisory capacity. An independent regulatory agency is a regulatory agency that is independent from other branches or arms of the government. Regulatory agencies deal in the area of administrative law—regulation or rulemaking (codifying and enforcing rules and regulations and imposing supervision or oversight for the benefit of the public at large). The existence of independent regulatory agencies is justified by the complexity of certain regulatory and supervisory tasks that require expertise, the need for rapid implementation of public authority in certain sectors, and the drawbacks of political interference. Some independent regulatory agencies perform investigations or audits, and some are authorized to fine the relevant parties and order certain measures. Regulatory agencies are usually a part of the executive branch of the government, or they have statutory authority to perform their functions with oversight from the legislative branch. Their actions are generally open to legal review. Regulatory authorities are commonly set......

Words: 12028 - Pages: 49

Premium Essay

Financial System of Bangladesh

...Overview of Financial system of Bangladesh  The financial system of Bangladesh is comprised of three broad fragmented sectors: Formal Sector, Semi-Formal Sector, Informal Sector. The sectors have been categorized in accordance with their degree of regulation. The formal sector includes all regulated institutions like Banks, Non-Bank Financial Institutions (FIs), Insurance Companies, Capital Market Intermediaries like Brokerage Houses, Merchant Banks etc.; Micro Finance Institutions (MFIs).  The semi formal sector includes those institutions which are regulated otherwise but do not fall under the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange Commission or any other enacted financial regulator. This sector is mainly represented by Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank etc., Non Governmental Organizations (NGOsand discrete government programs. The informal sector includes private intermediaries which are completely unregulated. [pic] The financial market in Bangladesh is mainly of following types: Money Market: The primary money market is comprised of banks, FIs and primary dealers as intermediaries and savings & lending instruments, treasury bills as instruments. There are currently 15 primary dealers (12 banks and 3 FIs) in Bangladesh. The only active secondary market is overnight call money market which is......

Words: 4761 - Pages: 20

Free Essay


...its advantage. Its functions comprise monetary management, foreign exchange and reserves management, government debt management, financial regulation and supervision, apart from currency management and acting as banker to the banks and to the Government. In addition, from the beginning, the Reserve Bank has played an active developmental role, particularly for the agriculture and rural sectors. Over the years, these functions have evolved in tandem with national and global developments This book aims to demystify the central bank by providing a simple account of the Reserve Bank’s operations and the multidisciplinary nature of its functions. The Bank today focuses, among other things, on maintaining price and financial stability; ensuring credit flow to productive sectors of the economy; managing supply of good currency notes within the country; and supervising and taking a lead in development of financial markets and institutions. The book serves to highlight how the Reserve Bank’s decisions touch the daily lives of all Indians and help chart the country’s economic and financial course. We hope that readers would find the book , authored by the staff of the Bank, useful in getting a better appreciation of the policies and concerns of the Reserve Bank. Dr. J. Sadakkadulla Principal Reserve Bank Staff College Chennai 3 4 Contents S. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Chapters Overview Organisation Monetary Management Issuer of Currency Banker and Debt......

Words: 31973 - Pages: 128

Premium Essay

Mms Finance

...Business - Daniels and Radebouqh 2. International Business - Sundaram and Black 3. International Business — Roebuck and Simon 4. International Business – Charles Hill 5. International Business— Subba Rao 3.0.2 Strategic management 100 Marks Course Content 1. Strategic Management Process: Vision. Mission, Goal Philosophy. Policies of an Organization. 2. Strategy, Strategy as planned action, Its importance, Process and advantages of planning Strategic v/s Operational Planning. 3. Decision making and problem solving. Categories of problems, Problem solving skill, Group decision making. Phases indecision making, 4. Communication Commitment and performance, Role of the leader, Manager v/s Leaders Leadership styles 5. Conventional Strategic Management v[s Unconventional Strategic Management. The Differences, Changed Circumstance. 6. Growth Acce orators: Business Web, Market Power, learning based. 7. Management Control, Elements, Components of Management Information Sysstems 8. Mokena’s 7 8 Models : Strategy, style, structure, systems, staff, skill and Shared values 9. Group Project Reference Text 1. Strategic Management — Thompson & Striekland McGraw Hill 2. Competitive advantage – Michael...

Words: 2761 - Pages: 12

Premium Essay

Malaysian Banking System

...into two major categories, Financial Institutions and Financial Market. The Financial Institutions comprise Banking System and Non-bank Financial Intermediaries. The Financial Market in Malaysia comprises four major markets namely: Money & Foreign Exchange Market, Capital Market, Derivatives Market, and Offshore Market. Chart 1: The Financial System Structure in Malaysia Financial System Financial Institutions Banking System Non-Bank Financial 1. Bank Negara Malaysia Intermediaries 2. Banking Institutions 1. Provident and Pension • Commercial Banks Funds • Finance Companies 2. Insurance Companies • Merchant Banks (including Takaful) • Islamic Banks 3. Development Finance 3. Others Institutions 4. Savings Institutions Financial Market Money & Foreign Exchange Market 1. Money Market 2. Foreign Exchange Market Capital Market 1. Equity Market • Discount Houses • Representative Offices of Foreign Banks • National Savings Bank • Co-operative Societies 5. Others • Unit Trusts • ......

Words: 8963 - Pages: 36

Premium Essay

Financial Performance

...for the FIs. But currently the industry seems to become matured with so many competitors. The recent inclusion of another two new financial institutions (Bangladesh Infrastructure Finance Fund Limited (BIFFL) & Agrani SME Financing Company Limited) in the market has increased the number of competitors at 31. From the research & provided data it is very clear that the companies are trying to strengthen their position in the market as the investment n fixed asset seems to on the rise. Besides following the stock market crash in 2010 and recent rise in the dollar price, the cost of fund has also significantly jumped. Altogether these factors are provoking the decline in the growth in income for the companies. As per Section 7 of the Banking Companies Act 1991, commercial banks also started different activities offered by financial institutions, specially leasing. Following the act, commercial banks started their leasing operation effectively in...

Words: 14002 - Pages: 57

Premium Essay

Report on Financial Statement

...INTRODUCTION: International Finance Investment and Commerce Bank Limited (IFIC Bank) is banking company incorporated in the People’s Republic of Bangladesh with limited liability. It was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private sector with the objective of working as a finance company within the country and setting up joint venture banks/financial institutions aboard. In 1983 when the Government allowed banks in the private sector, IFIC was converted into a full-fledged commercial bank. The Government of the People’s Republic of Bangladesh now holds 32.75% of the share capital of the Bank. Directors and Sponsors having vast experience in the field of trade and commerce own 8.62% of the share capital and the rest is held by the general public. Mission: Our Mission is to provide service to our clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make our position unique in giving quality service to all institutions and individuals that we care for. We are committed to the welfare and economic prosperity of the people and the community, for we derive from them our inspiration and drive for onward progress to prosperity. We want to be the leader among banks in Bangladesh and make our indelible mark as an active partner in regional banking operating beyond the national boundary. In an intensely competitive and......

Words: 2613 - Pages: 11

Premium Essay

Chapter 5 Financial System of Malaysia

...Market. The Financial Institutions comprise Banking System and Non-bank Financial Intermediaries. The Financial Market in Malaysia comprises four major markets namely: Money & Foreign Exchange Market, Capital Market, Derivatives Market, and Offshore Market. Chart 1: The Financial System Structure in Malaysia Financial System Financial Institutions Financial Market Banking System 1. Bank Negara Malaysia 2. Banking Institutions • Commercial Banks • Finance Companies • Merchant Banks • Islamic Banks 3. Others • Discount Houses • Representative Offices of Foreign Banks Non-Bank Financial Intermediaries 1. Provident and Pension Funds 2. Insurance Companies (including Takaful) 3. Development Finance Institutions 4. Savings Institutions • National Savings Bank • Co-operative Societies 5. Others • Unit Trusts • Pilgrims Fund Board • Housing Credit Institutions • Cagamas Berhad • Credit Guarantee Corporation • Leasing Companies • Factoring Companies • Venture Capital Companies Money & Foreign Exchange Market 1. Money Market 2. Foreign Exchange Market Capital Market 1. Equity Market 2. Bond Market • Public Debt Securities • Private Debt Securities Derivatives Market 1. 2. 3. Commodity Futures KLSE CI Futures KLIBOR Futures Offshore Market 1. Labuan International Offshore Financial Center (IOFC) 5.2 Banking System The banking system consists of Bank Negara Malaysia (Central Bank of Malaysia), banking institutions (commercial banks, finance......

Words: 8960 - Pages: 36

Premium Essay

Market Expansion to highlight and examine the key strategic risks for Koch Industries as they look to expand their market share to the Philippines. Furthermore, this paper will also outline a financial strategy for implementing this expansion by identifying the associated risks of foreign currency exposure, as well as addressing the major dimensions on international finance, evaluate the basic functions of the international banking system and financial market, and finally recommendations on the best way ahead for Koch Industries entering the Philippine market. To begin, this paper will first examine the possible risks of foreign currency exposure for Koch Industries in the Philippines. As financial markets have become more global and fast moving, foreign currency exposure can have an enormous and rapid impact on profitability can be potentially catastrophic to even the most entrenched and successful companies. Managing exposure and mitigating risk is large and involved process, and has been shown that companies in western industrial economies are quite refined and cultured in currency hedging and conduct business with a modest amount of risk. However, while there is a plethora of evidence supporting the actions of western industries much less is available regarding companies in the rapidly emerging Asia-Pacific region. The results of a 13-year study conducted by Professor David Parsley, of the Owen Vanderbilt Graduate School of Management, found that “the basic issue is that many......

Words: 2177 - Pages: 9

Premium Essay

Risk Management

...Risk Management Risk is inherent in our business and sound risk management is critical to our success. The major types of risk we face are credit risk, market risk (which includes liquidity risk and price risk) and operational risk. We have developed and implemented comprehensive policies and procedures to identify, monitor and manage risk throughout the Bank. Credit Risk Credit risk is the possibility of loss due to the failure of any counterparty to abide by the terms and conditions of any financial contract with us. We identify and manage this risk through (a) our target market definitions, (b) our credit approval process, (c) our post-disbursement monitoring, and (d) our remedial management procedures. Wholesale Credit Risk For our commercial banking products, we target the top end of the Indian corporate sector, including companies that are part of the private sector business houses, public sector enterprises, and multinational corporations and leading small and mid-sized enterprises (“SME”). As a result, a large part of our wholesale lending is generally concentrated among highly rated customers. In addition to market targeting, the principal means of managing credit risk is the credit approval process. We have policies and procedures to evaluate the potential credit risk of a particular counterparty or transaction and to approve the transaction. For our wholesale clients, we have a risk assessment and grading system that is applied to each corporate......

Words: 10177 - Pages: 41

Premium Essay

Commercial Banks in Bulgaria Under Currency Board

...crucial year for the Bulgarian banking system The real reforms in the Bulgarian banking sector started in 1997, after the introduction of the currency board in the country. Bulgaria's macroeconomic performance between the fall of communism and early 1997 was especially poor. The decent economic performance in the beginning later deteriorated into hyperinflation and negative growth of GDP. Hyperinflation reached almost 500 % in January 1997 and more than 2,000 % in March 1997. An extremely severe economic crisis began in May 1996 and reached its zenith in February 1997. The Bulgarian currency started falling and finally collapsed in February 1997 when it reached unprecedented levels of about 3000 Leva per dollar in February 1997, while foreign exchange reserves dried out. The average monthly wage plunged from over $127 in 1995 to under $25 in 1997. Currency Board Adoption The IMF started to press the Bulgarian authorities to introduce a CBA. With the worsening of the crisis by the spring of 1997, this plan was finally accepted and CBA was implemented on the 1st of July 1997 and actually brought hyperinflation down to around 5%. The Bulgarian currency was fixed to the DeutscheMark, the volume of currency circulation was linked to the hard currency reserves, and the currency board undertook the monetary policy management. A new stage of banking sector reform started: entirely new laws on BNB and commercial banks were adopted, entry of foreign banks was liberalized,......

Words: 1262 - Pages: 6

Premium Essay


...Internship Proposal on: Credit Risk Management Practices in Sonali Bank Ltd Performance Evaluation of Sonali Bank Ltd Foreign Exchange Operation of Sonali Bank Ltd | Prepared For: Sadia Noor Khan Lecturer Department of Banking & Insurance Prepared By: Maiful Kausar Ikra ID-17-023 Department of Banking & Insurance University of Dhaka Department of Banking & Insurance Submission Date: January 14, 2015 Proposed Internship Topics Introduction to the Study: Each BBA program needs practical knowledge of the respective field of discipline to be fruitful. Our BBA program also has an internship program, relating to the exchange of theoretical knowledge into the real life practical situation. To support my internship report I will work as an intern in Sonali Bank Ltd. My name is Maiful Kausar Ikra. It was great opportunity for me to complete my internship program in the largest state owned commercial bank "Sonali Bank Ltd." As a part of internship program I want to prepare report on the following topics…… 1.Credit Risk Management Practices in Sonali Bank Ltd Background of the study: To support my internship report I will work as an internee Sonali Bank Ltd. and my topic of the report is "Credit risk management practices in Sonali Bank Ltd." as part of the fulfillment of internship requirement. One of most significant challenges for a bank is to strongly manage its credits. Since the......

Words: 1705 - Pages: 7

Premium Essay

Financial Institution of India

...Financial Institutions in India- Financial sector plays an indispensable role in the overall development of a country. The most important constituent of this sector is the financial institutions, which act as a conduit for the transfer of resources from net savers to net borrowers, that is, from those who spend less than their earnings to those who spend more than their earnings. The banking institutions of India play a major role in the economy of the country. The banking institutions are the providers of depository and transaction services. These activities are the major sources of creating money. The banking institutions are the major sources of providing loans and other credit facilities to the clients. Apart from the banking financial institutions, there are a number of specialized financial institutions in India that have been incorporated for a definite purpose. These institutions include the insurance companies, the housing finance companies, mutual funds, merchant banks, credit reporting and debt collection companies and many more. Apart from these, there are several other financial institutions that are existing in the country. These are the stock brokers and sub-brokers, portfolio managers, investment advisors, underwriters, foreign institutional investors and many more. They are divided in two categories. The first type refers to the regulatory institutions and the second type refers to the intermediaries. * The regulators are assigned with the job of......

Words: 4791 - Pages: 20