Financing costs relating to debt restructuring will add another pounds 15 million, and the closure of a
forward currency contract another pounds 79 million in charges before tax relief, again to be booked as an exceptional cost in the 2003-2004 accounts.
The valuation of the maximum credit risk associated with an unrecognized interest rate swap or
forward currency contract is the current market rates to replace the swap or forward contract if there is a default by the counter party.
Further, both LOR and LGI invest in emerging market currencies (primarily by entry into
forward currency contracts), or instruments whose value is derived from the performance of an underlying emerging market currency and in debt obligations as well, which include government, government agency and corporate obligations and structured notes denominated in emerging market currencies.
The Fund seeks enhanced income by investing in short duration (typically less than one year) emerging market
forward currency contracts and other emerging market debt instruments.
The ratio of the interest rates between two countries must equal the ratio of
forward currency contracts and their spot currency rates, also known as parity.
"Risk management strategies include derivatives in the form of
forward currency contracts for purchases in foreign currencies which seek to mitigate this risk in the short, medium and long term.
* Short-term risk-management strategy: Acme mitigates its nonfunctional currency exposure in accounts receivable by hedging through
forward currency contracts (see the sidebar, "Common Hedging Strategies for Foreign Currencies").
ABF said that the collapse in sterling against the dollar since the Brexit vote will have "no effect" on Primark this year because of the firm's practice of taking out
forward currency contracts.
In order to hedge its exposure to RMB, the Fund intends to enter into
forward currency contracts or listed futures contracts designed to minimize the Fund's exposure to the RMB.
The application of wacdan will not raise issues of riba al-nasiah similar to the conventional use of
forward currency contracts as it is not a contract.
Forward currency contracts have been widely used by importers/exporters to hedge against currency risk.
This ruling by Bahrain-based AAOIFI has contributed to widespread opposition to the use of muwa'adah in
forward currency contracts.
