Question

Discuss the elements of FOREX and describe what FOREX is. Explain why it is imperative that companies manage this and how would they do so.

Please answer in as much detail as possible. I will kindly rate and comment! Thank you so much!

Answer 1

Forex or foreign exchange market is over the counter (OTC) market where we trade currencies, foreign exchange rate of every country is determined by the market, FOREX include three main element buying , selling and exchanging currencies at current market price.

Now if we talk about the market participants it includes larger international bank, Financial companies, Hedgers, small trader. Firm need to manage their Forex reserve in order to have successful trade. Big firm generally engage in importing and exporting goods and services to settle their transaction they should have Forex with them. Sometime company hedge in Forex to mitigate their risk. For example if price and basis risk is known, then company can predict and hedge accordingly to nullify their risk.