International Finance Assignment Example | Topics and Well Written Essays - 500 words - 2

International Finance - Assignment Example These are bills of exchange with a period of maturity of about three months. The bills used for international payments. Credits required by importers to have possession of goods, after which they sell them and pay off their bills (Eighth 2012, pp. 10-12). Hedging happens when importers and exporters engage an agreement to buy and sell goods at a future date in current prices. The significance of this is avoidance of losses that caused by variation of exchange rates (Eighth 2012, pp. 10-12). It is an agreement between two parties in order to exchange currencies. The transaction carried out once for commercial customers and on the subsequent business day for the inter-bank traders (Eighth 2012, pp. 7-8). It is a more refined form of transaction. A technique shelters the borrowing a currency on a collateralized basis (Eighth 2012, p. 5). For instance, the dealer sells  £18,000 forward for dollars. The delivery is in three months at $ 2.4531/ £. The dealer simultaneously buys 18,000,000 forward for the delivery in a subsequent four months at a $ 2.4331. The difference accrued due to the difference between the selling and buying price has an equivalent rate differential. Terms and the number of units of foreign currency that is required to purchase a dollar are most common denominator in foreign currencies (Eighth 2012, pp. 10-12). For example, the exchange rate between the US dollar and the Swiss