Tuesday, September 2, 2014

Cross Currency Roll Over

Cross Currency Roll Over contacts are contracts to cover overseas leg of long term foreign exchange liabilities or assets. The cover is initially obtained for six months & later extended for further period of 6 months & so on.

Roll Over charge or benefit depends on forward premium or discount, which in turn, is a function of interest rate differential between US dollar & the other currency. There is no risk of currency appreciation or depreciation in the overseas leg:

Roll over for a maturity period exceeding 6 months is not possible because in the inter-bank market, quotations beyond 6 months are not available.

Under the Roll over contracts the basic rate of exchange is fixed but loss or gain arises at the time e of each Roll over depending upon the market conditions.

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