Q:1 As the forex bargainer what argon the various risks do you face in the forex market?
Ans. Forex Dealers across Globe generally face following risks
1. Market put on the line – Volatile causes of supersede Rates. In Major Currencies in normal market conditions equipment casualty fluctuation is average 15 times per minutes i.e. either 4 seconds.
2. Credit attempt – Risk of counterparty not honor the deal due to insolvency etc.
3. state of matter Risk – The Country of the reappearance Party puts restrictions on movement of Foreign Currency.
4. Liquidity Risk – Inability to meet the obligations due to shortage or non approachability of Funds.
5. Gap Risk or amour Rate Risk – In case of unhedged Forward Positions, there is probability of movement of Forward Points due to change in Rate of Interest in either of the currencies.
Q:2 As a dealer how do you cope with those risks.
Ans. The institutions are aware of these risks and take materialistic decision as to what level they bottomland bear the expiry arising due to the above risks. Accordingly they fix limits to manage all(prenominal) type of risk. The dealers are required to adhere to those limits as stiff by their institution.
Market Risk—Open Position Limits are improve for during the day (Daylight Limit) and overnight limit.
Maximum open grade that can be taken at any given up point of time and position that can be go forth open at the close of the day.
Credit Risk – as well as called Counter Party Risk or Settlement Risk. Institutions fixed how much maximum risk can be taken on a single party. Reserve Bank of India has to a fault fixed Credit Weightage on Counter Party Risk. These Limits can be based on Rating given by International Rating Agencies like Standard and Poor or Moody’s. etc. or internal Rating Modules.
Country Risk – Though limit is fixed for the exposure on any Bank, maximum position on any verdant is also fixed to ensure diversification of risk on countries and avoiding...If you want to get a full essay, order it on our website: Ordercustompaper.com
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