AFMP4

Syllabus E2. The Use Of Financial Derivatives To Hedge Against Forex Risk 5 / 5

a) Assess the impact on an organisation to exposure in translation, transaction and economic risks and how these can be managed. 

b) Evaluate, for a given hedging requirement, which of the following is the most appropriate strategy, given the nature of the underlying position and the risk exposure:
i) The use of the forward exchange market and the creation of a money market hedge
ii) Synthetic foreign exchange agreements (SAFEs)
iii) Exchange-traded currency futures contracts
iv) Currency swaps v) FOREX swaps
vi) Currency options.

c) Advise on the use of bilateral and multilateral netting and matching as tools for minimising FOREX transactions costs and the management of market barriers to the free movement of capital and other remittances.
The Use Of Financial Derivatives To Hedge Against Forex Risk