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Compose a 1000 words assignment on hedging an account payable. Needs to be plagiarism free!
Compose a 1000 words assignment on hedging an account payable. Needs to be plagiarism free! This financial agreement is a swap that involves the exchange of principal and interest in one currency for the same in another currency after a specific period of time. It is considered to be a foreign exchange transaction but is not required by law to be shown on the balance sheet.
In this type, there should not only be a need for our US based company to acquire Pounds but also the UK supplier needing US dollars. If such is the case, both companies could arrange to swap currencies by establishing an interest rate, an agreed upon amount and a common maturity date for the exchange. Currency swap maturities are negotiable for at least 10 years, making them a very flexible method of foreign exchange. This may be recommendable considering that the UK supplier has a subsidiary in the US which may need US dollars for its transactions. The data available to us however indicates does not contain any information regarding this. (Investopedia, 2006a). (Wikipedia, 2006a).
Rather a popular form of swap, the interest rate swap is a financial agreement in which one party exchanges a stream of interest for another party's stream. Interest rate swaps are normally 'fixed against floating' but can also be 'fixed against fixed' or 'floating against floating' rate swaps.
Interest rate swaps are used to change the company's exposure to interest rate fluctuations by swapping fixed-rate obligations for floating rate obligations or vice versa.
To understand how each party would benefit from this .
It is considered to be a foreign exchange transaction but is not required by law to be shown on the balance sheet.
In this type, there should not only be a need for our US based company to acquire Pounds but also the UK supplier needing US dollars. If such is the case, both companies could arrange to swap currencies by establishing an interest rate, an agreed upon amount and a common maturity date for the exchange. Currency swap maturities are negotiable for at least 10 years, making them a very flexible method of foreign exchange. This may be recommendable considering that the UK supplier has a subsidiary in the US which may need US dollars for its transactions. .
