Ar-forex ltd provides efficient solutions in the world of finance to corporations and medium-sized enterprises, from commercial and industrial to resource-related ones, that are not entitled to perform independent professional trading in the international financial markets.
If your company accumulates and keeps free cash flow on current accounts without further charged interest, then this proposal is for you! The funds can be efficiently used for gaining profits in the international financial markets through short-term and medium-term speculative operations, both at full and partial use of your capital.
Nowadays every active enterprise is subject to a great variety of risks. Risk factors include changes in prices for raw materials and resources, interest rate increase, currency fluctuation and many others. Access to financial instruments provided by the Ar-forex ltd broker is considered to be one of the most effective ways to control risks and reduce their effect. A custom-made system gives you an opportunity not only to gain extra profit, but also to plan future income and protect your assets against possible market changes.
Exchange Risk Hedging
Our current economic model accounts for regular changes in the exchange rate resulting in significant cost variations for foreign currency goods and services. Market situation cannot be profitable forever. A company may receive less profit, a good bargain may turn into a loss. To avoid this, you should take necessary steps in advance. It is especially important when working with foreign partners. For instance, a decrease in the national currency exchange rate is more than undesirable for importing companies, and vice versa for exporting ones.
Market instruments provided by our company will help you to eliminate all possible exchange risks.
An importing company has an agreement for purchasing European equipment in 2 months. At the moment the company has sufficient dollar funds for further conversion into euros. The contract totals up to 1,000,000 euros. The company has to spend 1,200,000 USD for a purchase of 1,000,000 euros (one euro is exchanged for 1.2 USD), and the deal is profitable but only at the given time. In two months the exchange rate may decrease (one euro is exchanged for 1.15 USD), thus enabling the company to save 50,000 USD. However the exchange rate may increase as well (one euro is exchanged for 1.33 USD), thus incurring additional costs of 130,000 USD.
We offer the following solution: opening a long position of 1,000,000 euros enables the company to fix the exchange rate of 1.2 USD per euro. The company closes the position at the time of the transaction with supplier. To implement this solution, a margin (security deposit) of 12,000 USD is required.
Here are possible outcomes at the time of the transaction with supplier:
The euro is quoted at 1.45 (an increase) – the company receives a profit of 250,000 USD (one million multiplied by (1.45-1.2)) after closing the position. Thus hedging covers the expenses for a 1,000,000 euro purchase.
The euro is quoted at 1.33 (an increase) – the company receives a profit of 130,000 (one million multiplied by (1.33 – 1.2)) after closing the position. Thus hedging covers the expenses for a 1,000,000 euro purchase.
The euro is quoted at 1.11 (a decrease) – the company loses 90,000 USD (one million multiplied by (1.11 – 1.2)). However the loss will be covered, as the company spent 1,100,000 USD for a 1,000,000 EUR purchase.
Thus hedging enabled the company to eliminate the uncertainty of importing price changes due to the fixed exchange rate. (In the above calculations all numbers are given as an example only and may not coincide with a current market situation).
Another relevant risk exchange option refers to a fixed-term currency deposit with the risk of further drop in the deposit currency exchange rate.
High interest rates cannot cover the risk of a significant drop. Hedging enables you to protect your savings from adverse currency fluctuations while keeping high interest rates.
Interested in a reliable partner? Ar-forex ltd is what you need!