Best Forex Trade
Forex trade refers to the trading of foreign exchange, i.e. trading one currency for another. It is required when a person or company sells its products or services in a different country or when it receives product or services from a supplier dealing with another currency.
In case of any organization, a primary objective is to effectively manage its forex trade so as to be able to create some amount of certainty regarding its cost and revenue structure. Moreover, it may also be said that with the world shrinking into a global village in the last decade, no large organization can keep itself from forex involvement and thus are always subjected to currency volatility in the market.
Firstly, one of the best forex trade strategies is to create a company policy sanctioned by the board of directors. This policy should have all the hedging details like its objectives, the currency exposures, and preferable time frames, hedging product specifications, speculation limits, controls, performance assessment, risk management strategies and the various departmental key responsibility areas. Moreover the firm should recruit employees who are well qualified and properly trained as well as deal with clients having a good credit history and risk handling strategies
Secondly, proper data collection leading to efficient forecasting is vital in case of forex trade. It is to be seen that all accounting reports are accurate so that the data collected have minimal errors and when analyzed gives a true picture and a good idea about future trends. Having strong internal controls goes a long way in increasing accounting accuracy. If your forecasted results are unsure and you have no clear picture about future market trends or stability, it is best to hedge small amounts.
In case of effective trading, adopting a centralized hedging approach would result in the benefits of economy of scale, better focus and overall increase in the competitiveness of the forex hedge purchases. Moreover, a strong internal control and adherence to the various accounting standards like GAAP, etc will ensure uniform and accurate accounting policies and procedures.
Lastly, in talking about operations, forex trade involves cross functional teams handling various aspects of a forex trade with the main responsibility vested with the CFO. Even then, activities related to treasury, tax and controller will need to be coordinated in a day to day manner. Thus, the best strategy is for the top management to play a supervisory role, regularly supervising hedging performance, hedging amounts, exposure and risk involved speculations, etc with a regular review of performance reports along with periodical review of the hedging policies.
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