Buying and Selling Foreign Currency Future

Mechanics of buying and selling foreign currency future Foreign Exchange Futures: Let us assume that in January an importing firm requires Swiss Franc 125,000 in three-month time. It purchases a SF12500 future contract through a broker at the rate of SF1 = $0.6600. the contract’s current value would be ($0.66SF  SF125000) U.S, $82500. It would… Read More »

Financial Futures Market

These are the markets that were “derived” from other markets. The first financial future contracts were derived from the foreign exchange market. A financial future contract is a contract to deliver or take delivery of a financial instrument at a future date. In some cases where delivery is difficult, the contract may be settled by… Read More »

Risks inherent in Spot and Forward transactions

In spot transactions, settlements are effected within two working days of striking the deal. Although both payments are to be made simultaneously, because of geographical distance, the differing timing zones and the technicalities of the respective clearing systems, it is only possible to ascertain on the following day whether payment has actually been made by… Read More »

Forward Contracts and Futures contracts

Forward contracts versus Future contracts Commodity brokers use forward and futures contracts for which reason? Points of difference between forward contracts and financial futures are as under: Forward contracts are available in any amount, small or large, whereas financial future contracts are in standard size. Forward contracts are meant for bonafide trade transactions whereas in… Read More »

Correspondent Bank

Correspondent Banking The term “correspondent banking” is defined as informal arrangement whereby a smaller bank maintains deposit balances with larger banks in nearby cities and looks to them for a wide variety of services and assistance. Another writer has described “Correspondent Banking” as an informal linkage between banks in different countries set up when banks… Read More »

Types of Letter of Credit

Standby Letter of Credit Standby letter of credit is a guarantee and is mainly used in USA where according to local laws American Banks are not permitted to issue guarantees. Standby LC differs from a documentary letter of credit in that the latter requires “performance” while the former requires “non-performances” i.e. under a documentary letter… Read More »

Difference between Financial Documents and Commercial Documents

Differentiate between “Financial Documents” and “Commercial Documents” Financial documents Financial documents mean bills of exchange, promissory notes, checks or other similar instruments used for obtaining the payment of money. Commercial documents Commercial documents mean invoices, transport documents, documents of title or other similar documents or any other documents whatsoever not being financial documents.

Advance Payment Guarantee

Advance Payment Guarantee A contractor who is awarded a contract may ask for advance payment in order to  start the project. The project sponsor will, for this purpose, require an Advance Payment guarantee to the effect that the contractor will perform his contract and if he fails, he will refund to the project sponsor the… Read More »

Performance Guarantee or Performance Bond

Performance Guarantee or Performance Bond Article 2 of ICC publications 325 defines “Performance Guarantee” as an undertaking given by bank (guarantor) at the request of a supplier of goods or services or other contractor (principal) to a buyer or to an employer (the beneficiary) whereby the guarantor undertakes, in the event of default by the… Read More »

Bid Bond

Tender Guarantee or Bid Bonds The Uniform Rules for Contract Guarantee, Article two states that for the purpose of these rules, a “tender guarantee” means an undertaking given by bank (guarantor) at the request of a tenderer (principal) to a party inviting tenders (beneficiary) whereby the guarantor undertakes, in the event of default by the… Read More »