Banking Exam Question - What are the NRB Directives About Foreign Exchange Related Risk Management in Banks & Financial Institution? Explain

Introduction - Foreign Exchange Risk Management

Foreign exchange risk (otherwise called FX chance, swapping scale hazard or money chance) is a budgetary hazard that exists when a monetary exchange is designated in a cash other than that of the base cash of the organization. 

What is risk management in forex trading?

Forex risk management can have the effect between your survival or sudden demise with forex exchanging. Hazard administration is a blend of different plans to control your exchanging hazard. It can confine your exchange parcel measure, supporting, exchanging just amid specific hours or days, or knowing when to take misfortunes. 

What is translation risk in foreign exchange?

The exchange rate risk related with organizations that arrangement in outside monetary forms or rundown remote resources on their accounting reports. The more prominent the extent of benefit, obligation and value classes named in an outside money, the more prominent the interpretation hazard.

What are main factors that affect exchange rates?

• Inflation Rates: Changes in market inflation cause changes in currency exchange rates
• Interest Rates: Changes in interest rate affect currency value and dollar exchange rate
• Country's Current Account / Balance of Payments
• Government Debt
• Terms of Trade
• Political Stability & Performance
• Recession
• Speculation