INTERNATIONAL PAYMENT IN TRAVEL AND TOURISM Group 4  Nguyễn Thị Huyền Trang  Hoàng Thị Minh Ngọc  Lê Thị Loan  Nguyễn Thị Thùy Linh  Đào Thị Thanh Xuân Discussion question: Analysis the risk by the foreign exchange on FOREX Contents Contents 1. Exchange rate risk 2. Interest rate risk 3. Credit risk 4. Dictatorship risk/Country risk Contents 1. Exchange rate risk What is the FOREX?  International currency market • A special kind of the world financial market • Different from other sectors of the world financial system. • Heightened sensibility to a large and continuously changing number of factors. • Accessibility to all individuals and corporative traders  Trader’s purpose: get profit as the result of foreign currency purchase and sale   Exchange rate change under the action of demand and supply alteration 1. Exchange rate risk What is it? How it works? Position limit Loss limit The risk involved based on the effect if the continuous and usually fluctuating shift in the worldwide market supply and demand balance on an outstanding foreign exchange position 1. Exchange rate risk What is it? How it works Position limit Loss limit • Quite substantial • Based on the market’s perception of which way the currencies will move at anytime & anywhere in the world 1. Exchange rate risk What is it? How it works? Position limits Assessing Establishing the maximum amount of any currency at which a trader is allowed to carry, at any single time. 1. Exchange rate risk What is it? How it works? Position limit Loss limit The loss limit is a measure designed to avoid unsustainable losses made by traders by means of setting stop loss levels. It is imperative that you have stop loss orders in place.  Exchange rate risk is the risk associated with changes in the quoted rate of the currency market.  In fact, this change is also what we expect when investing in the Forex market.  This is the biggest risk of all types of risks, but also bring huge profits for investors.  Any tools to limit this risk also limited potential profits.  1. Exchange rate risk  Occurs as a result of changes in exchanger rate.  Refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book.  To minimize interest rate risk, one set limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates into up to six months and past six months. 2. Interest rate risk [...]... continents -Currencies may be traded at different prices at different times during the trading day Australian and New Zealand Dollars are credited first, then the Japanese Yen, followed by the European currencies and ending with the US Dollar 4 Dictatorship risk/country risk Dictatorship (sovereign) risk refers to a government's interference in the Forex marketplace  Although theoretically present in. ..2 Interest rate risk   The central bank's interest rate changes periodically to manage the economy and as such, the interest rate differential is also changing rapidly This change is rare and a large interest rate cuts never occur rapidly but slowly, step by step That is why traders should keep an eye on the interest rate change of currency if they want to pursue a long-term investment strategy... What is it? Replacement risk Settlement risk Possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party 3 Credit risk What is it? Replacement risk Settlement risk Occurs when counter-parties of a failed bank or Forex broker find they are at risk of not receiving their funds from the failed bank 3.Credit risk What is it? Replacement... theoretically present in all foreign exchange instruments - currency futures are, for all practical purposes, exempt from country risk, for the reason that the major currency futures markets are located in the US  4 Dictatorship risk/country risk  However, traders must account for all types of risk and take the necessary measures to account for possible administrative restrictions that may affect their . INTERNATIONAL PAYMENT IN TRAVEL AND TOURISM Group 4  Nguyễn Thị Huyền Trang  Hoàng Thị Minh Ngọc  Lê Thị Loan  Nguyễn. Exchange rate risk 2. Interest rate risk 3. Credit risk 4. Dictatorship risk/Country risk Contents 1. Exchange rate risk What is the FOREX?  International currency market • A special kind of the. first, then the Japanese Yen, followed by the European currencies and ending with the US Dollar 4. Dictatorship risk/country risk  Dictatorship (sovereign) risk refers to a government's