Webinar Slides: Accounting for Foreign Currencies Under IFRS
Trade Foreign Currencies
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Transcript of Trade Foreign Currencies
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
People trade foreign currencies to two distinctly different reasons.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
First of all, companies that buy products from foreigners pay with foreign currencies.
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http://www.theforexnittygritty.com/forex/trade-foreign-currencies
They trade foreign currencies to make payment and often buy currency options to hedge currency risk.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
These traders limit themselves to the currencies involved, their own and that of the company from whom they are going to purchase a foreign product.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
On the other hand currency speculators trade foreign currencies for profit.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
They pick and choose currency pairs to trade based on market volatility and their analysis of fundamental and technical factors.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
In each case success comes from careful analysis and timely execution of trades.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Hedging Risk in International Business
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Forex trading and currency risk are inextricably intertwined.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Currency risk is a form of risk that arises from the change in price of one currency against another.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
The basic need for a Forex market comes from the need to do business across national boundaries.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
A translation risk is the risk that the Forex market rates will change between writing a contract and final payment.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
A Chinese ship building company writes a contract for payment in dollars for building a ship.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Then the company buys what it needs to build the ship and it pays its workers in Yuan.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
The value of the Yuan goes up and the dollar goes down. The company ends up losing money on the sale.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
An American high tech company agrees to pay a German company in Euros for each dosage for use of its patent on a genetically engineered cancer therapy.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
The Euro goes up and dollar goes down. The American company’s payment in dollars by the HMO’s and Medicare is frozen and the company cannot afford to make and sell the drug in question.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Companies commonly buy currency options in order to set a price that they will pay no matter how much the relative value of a currency pair changes.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Picking the Most Profitable Currency Pair
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Currency speculators are not tied to a given currency pair.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
They will scout out market volatility, analyze fundamentals and track market sentiment with technical indicators.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Then they will place timely trades in order to profit from the inefficiency of a moving market.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
The point of speculating is not to hedge risk but rather to make money trading currencies.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Technical analysis tools such as Japanese Candlesticks help traders anticipate price fluctuations based on changes in market sentiment.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Sound fundamental analysis tells a trader where the market will eventually end up so that he can place his trade and simply wait for the market to come to him.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
As with all business, showing up every day and learning the appropriate skill sets are what lead to success.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
And, as always, do not trade when you are too tired to think.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
Check out every tip that you receive.
http://www.theforexnittygritty.com/forex/trade-foreign-currencies
And when you trade currencies stay out of any and all trades that you do not understand.