BMBF403

Foreign Exchange and Risk Management

L-T-P3-0-0 Credits3 Session2025-26 TypeTheory
Appears in 1 semester

MBA Banking & Financial Services · Sem 4 (Core)

Syllabus

5 units · 40 lecture hours
Unit1

Unit 1: Foreign Exchange, Foreign Trade and Exchange Rate Systems

8 hrs

Foreign Exchange and Foreign Trade; Exchange Rate; Foreign Exchange as Stock; Balance of Payments; Balance of Payments Accounting; Components of Balance of Payments; Current Account; Capital Account; Official Reserve Accounts; Debit and Credit Entries; International Exchange Systems; Fixed Exchange Rate System; Floating Exchange Rate System; Exchange Rate System Prior to IMF; Gold Currency Standard; Gold Bullion Standard; Gold Exchange Standard; Exchange Rate System under IMF; Bretton Woods System; Smithsonian Agreement; Flexible Exchange Rate Regime.

Unit2

Unit 2: Foreign Exchange Administration and Exchange Rate Theories

8 hrs

Convertibility of Rupee; Current Account Convertibility; Capital Account Convertibility; Theories of Foreign Exchange Rate Determination; Purchasing Power Parity (PPP); International Fisher Effect (IFE); Interest Rate Parity (IRP); Administration of Foreign Exchange; Authorized Persons; Authorized Dealers; Authorized Money Changers; Foreign Currency Accounts; Nostro Account; Vostro Account; Loro Account; Foreign Exchange Regulations.

Unit3

Unit 3: Foreign Exchange Transactions and Market Operations

8 hrs

Foreign Exchange Transactions; Purchase and Sale Transactions; Exchange Quotations; Direct Quotations; Indirect Quotations; Two-Way Quotations; Spot Transactions; Forward Transactions; Forward Margin; Factors Determining Forward Margin; Merchant Rates; Basis of Merchant Rates; Types of Buying and Selling Rates; Ready Rates Based on Cross Rates; Forward Exchange Contracts; Fixed Forward Contracts; Option Forward Contracts; Calculation of Fixed and Option Forward Rates; Interbank Deals; Execution of Forward Contracts.

Unit4

Unit 4: Exchange Dealings and Forex Risk Management

8 hrs

Exchange Dealings; Dealing Position; Exchange Position; Cash Position; Accounting and Reporting; Mirror Account; Value Date; Exchange Profit and Loss; R Returns; Foreign Exchange Markets; Settlement of Transactions; SWIFT; CHIPS; CHAPS; Fedwire; Forex Risk Management; Risks in Forex Dealing; Measurement of Value at Risk (VaR).

Unit5

Unit 5: Exchange Exposure and Hedging Strategies

8 hrs

Exchange Exposure and Exchange Risk; Transaction Exposure; Managing Transaction Exposure; External Hedge; Forward Contract Hedge; Money Market Hedge; Hedging with Futures and Options; Internal Hedge; Translation Exposure; Methods of Translation; Managing Translation Exposure; Economic Exposure; Managing Economic Exposure; Interest Rate Risk; Integrated Foreign Exchange Risk Management.

Course Objectives5 points
  • Understand the fundamental concepts of foreign exchange markets, international trade, Balance of Payments (BOP), and exchange rate systems.
  • analyse various theories of exchange rate determination and their implications for international financial decisions.
  • Apply knowledge of foreign exchange transactions, quotations, and trading mechanisms in practical business situations.
  • Evaluate different types of foreign exchange risks and develop appropriate risk management strategies.
  • Develop an understanding of forex operations, international payment systems, and hedging techniques for managing currency risk. Course Contents
Course Outcomes (COs)5 outcomes

After completion of the course student will be able to:

  1. CO1Understand the concepts of Balance of Payments and evaluate various exchange rate systems. K2: Understanding
  2. CO2Explain and analyse the theories of foreign exchange rate determination. K4: Analysing
  3. CO3Apply knowledge of foreign exchange transaction mechanisms, quotations, and market operations. K4: Analysing
  4. CO4analyse exchange dealings, settlement mechanisms, and foreign exchange market operations. K4: Analysing
  5. CO5Evaluate foreign exchange risks and apply appropriate risk management and hedging strategies. K5: Evaluating

Suggested Readings (Latest Editions)

  1. Jeevanandam, C.; Foreign Exchange and Risk Management; Sultan Chand & Sons.
  2. Vij, Madhu; International Financial Management; Excel Books Publications.
  3. Shapiro, Alan C. & Moles, Peter; International Financial Management; Wiley.
  4. Eun, Cheol S. & Resnick, Bruce G.; International Financial Management; McGraw-Hill Education.
  5. Apte, P. G.; International Financial Management; Tata McGraw-Hill.

Official AKTU syllabus

This subject is on page 20, 21 of the original AKTU PDF.

Official AKTU syllabus PDF ↗