Forex - Risks by the foreign exchange
Friday, 8 August 2008
The Forex is essentially at risk. By assessing the quality of a possible risk represented should be the following types of it: foreign exchange risk, interest rate risk and credit risk, country risk.
Foreign exchange risk. Currency risk is the effect of continuous change in the global market supply and demand in balance outstanding foreign exchange position. For the period, it is pending, the position will be subject to any price changes. The most popular measures to reduce losses in the short to drive profitable positions that losses should be kept within limits are the position and limit the loss limit. For the position of a maximum limit of a certain currency an operator is allowed to proceed at any moment during trading hours should be established. The loss limit is a measure to avoid unrealized losses by operators through stop-loss levels.
Interest rate risk. Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, and the amount before the deadline, and inadequate gaps among transactions on the exchange rate book. This risk is relevant to the currency swaps, forward pure and simple, futures contracts and options (see below). To minimize the risk of interest rates, sets limits on the total size of mismatches. A common approach is to separate shifts, based on their due date, up to six months and last six months. All transactions are recorded in computerized systems in order to calculate the positions for all delivery dates, gains and losses. Analysis of the interest rate environment is necessary to provide that any amendment May impact on the remaining gaps.
The credit risk. Credit risk refers to the possibility that a currency position into circulation May not be repaid as agreed, due to a voluntary or involuntary action by another party. In these cases, negotiation occurs on regulated markets, like downtown Chicago. The following forms of credit risk are known:
1. Replacement risk occurs when the counterparties of the bank did not find their books are subject to the risk of not obtaining reimbursement from the bank, if any accounts have been unbalanced.
2. The settlement risk occurs because of time zones on different continents. Accordingly, currencies May be traded at different prices at different times during the trading day. From Australia and New Zealand dollars are credited first, then the Japanese yen, followed by the European currencies and ending with the U.S. dollar. Hence, the May payment be made to a party that declares insolvency (or be declared bankrupt) immediately after, but before carrying out its own payments.
Therefore, to assess credit risk, end users must take into account not only the market value of their currency portfolios, but also the potential exposure of these portfolios. The potential risk May be determined by analysis of probability in time to maturity of the outstanding position. The systems currently available are very useful in implementing policies credit risk. The credit lines are easily controlled. In addition, the adequacy of systems put in place in foreign exchange since April 1993 are used by operators to implement the credit policy as well. The input operators total credit line for a specific. During the trading session, the credit line is automatically adjusted. If the line is fully utilized, the system prevents the operator over who is responsible for such consideration. After the deadline, the credit line back to its original level.
The dictatorship of risk. Dictatorship (sovereign) risk refers to government interference in the Forex. Although theoretically present in all instruments of change, currency futures are, for all practical purposes with the exception of country risk, because the main markets in currency futures are located in the USA. Hence, traders must realize that kind of risk and be able to account any administrative restrictions.
Labels: forex
posted by Master @ 04:41,