Question

1. Pls write advantages and disadvantages of Forward contract method related with Audi company . (150 words )

2. Please write advantage and disadvantages of Swap contract method related with Toyota company .( 150 words )

3. Please write advantage and disadvantages of options contract method related with Honda company .(150 words )

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Answer 1

Answer:1 AUDI COMPANY,ADVANTAGES AND DISADVANTAGES OF FORWARD CONTRACT METHOD RELATED WITH

AUDI COMPANY

Forward exchange contract advantages

The advantages are clear, the most obvious being you can stop things costing you more, or make sure you don’t lose out on foreign currency due at some point in the future.

• Buy now, pay later
• Lock in the current exchange rate for a future purchase/receipt
• Hedge your exposure and reduce your risk
• Very simple to set up
• Inexpensive to maintain
• You can draw down to get currency early
• You can rollover f you don’t need funds until after the original settlement

Forward exchange contract disadvantages

The main disadvantage is of course hindsight. One thing to bear in mind when looking at currency risk protection is that hedging can work against you. However, there are only a few disadvantages, compare to the protection that a currency forward provides.

• If the currency moves in your favour you have missed the gains.
• Small deposit required still ties up capital

If as an individual or company you want to hedge your currency exposure a more appropriate and much more accessible solution would be a currency forward.

However, it is important to consider all the options when dealing in currency risk management so here is a quick breakdown of the advantages and disadvantages of forward contracts and currency options:

Advantages of currency futures contracts:

• Low margin
• High liquidity
• Costs are very low
• Potential to profit without taking delivery

Disadvantages of currency futures contracts:

• Mainly paper based
• Set amounts traded in lots
• Losses can exceed your account balance
• restricted to professional traders
• Some brokers do not allow delivery

Advantages of currency options:

• They are very cheap to trade
• They are available on or off exchange
• Risk is limited to premium (if you are a buyer)
• Very high potential returns versus risk
• Lots of strategies to speculate on volatility and price movement

Disadvantages of currency options:

• They can be illiquid
• Quickly become worthless
• Risk is potentially unlimited (if you are a seller)