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- Foreign Exchange Rate Risk Management
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- Foreign Exchange Rate Risk Management
Product Detail
Your company is exposed to risk from exchange rate fluctuations when making transactions involving foreign currency, whether for trade of goods and services or for investment abroad. To minimize potential currency losses, management of foreign exchange rate risk is essential in helping your company manage costs and income effectively and undertake sound financial planning.
SCB offers three main types of foreign exchange risk management tool:
| Spot | Forward | Protection |
|---|---|---|
A contract to exchange foreign currency that is due for settlement by the spot date (within two business days after the trade date, i.e., T+2). |
A contract to buy or sell a certain amount of foreign currency to be settled at a specified rate within a specified period in the future (longer than for spot contract) |
A contract allowing the client to buy or sell a foreign currency, if wanted, at the client's preferred rate of exchange, within the option period. |
| Advantage |
Advantage |
Advantage |
| Exchange of most foreign currencies can be done quickly and conveniently. | Eliminates exchange rate uncertainty on settlement date, allowing foreign currency costs or income to be calculated at the forward rate |
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| Limitation | Limitation |
Limitation |
| Client is exposed to currency market volatility, with a risk of loss. | Client is obligated to the specified rate, which could represent the loss of an opportunity to maximize income or lower a cost, if the exchange rate has moved against the client's favor by the settlement date. |
Client is subject to an explicit and set fee, due upon contract signing. |
| Remark: | Remark: | |
| Client may choose one of three settlement date options: | Client must specify exchange rate option details below: |
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| · Value today | 1. Currency |
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| · Value tomorrow | 2. Exchange rate |
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| · Value Spot | 3. Exchange amount |
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| 4. Contract period |
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