1. Introduction to Forex Trading in Big Companies

However, there is no universal rule for forex trading that is applicable to all companies. The strategy followed by a company may change from company to company. The basic requirement of these companies is to create a good profit. The profit from forex trading for these companies may be nothing but the icing on the cake. Before entering the forex market, the companies need to set up a proper forex management system. It is also treated as a vital finance function and the job of the treasurer to overcome various financial bottlenecks. A strategy used by a company should be consistent with the earnings of the company. A company can follow various forms of strategies, which are laid down in the statute book. It depends on the investment pattern of the company. The Treasury manager should have vast knowledge of various management techniques before framing a strategy for forex transactions. These companies use vanilla as well as exotic structures.

Forex trading is not just limited to investment banks. Big companies carry out their businesses throughout the world. These companies have certain foreign assets and liabilities. Whenever these companies deal with overseas companies, they have to make and receive payments in foreign exchange. Therefore, forex trading is very essential for these companies. These companies have revenues and pay different interest, investments, and dividends in different countries. Thus, these revenues need to be repatriated back home. The company can convert the forex into its home currency at its will and requirement. Therefore, these companies require the management of forex trading very judiciously.

2.    Risk Management in Forex Trading

Risk Management by Large Corporate Entities: With the increase in business globalization, companies of all sizes are integrating electronically and transacting business anywhere, anytime, either via phone or the wire. Companies operating globally face multiple risks and benefits from the forex market. Most companies lack adequate exposure, advantages, and know-how in these markets, are vulnerable, and sometimes may pay their obligations to the extent of their earnings. Maintaining exchange rate stability would be essential for corporate entities to be immune to varying cash flows and reduce the liquidity penalties associated with them. Corporate entities depend on fluctuations in floating exchange rates, time differences in contracting, delayed exchange of goods, and rates at three stages of foreign transactions. A reasonable appreciation of the financial market not only adjusts the balance on invoices and letters of credit but also prompts the need for hedging with the initial underwriting of the bank. Proper timing, choice of hedging instruments, risk management, and good usage of instruments are essential for avoiding falling rates in the exchange markets. Hedging is possible, for example, by making forward exchanges, options, SWAPS, and the use of international investment in financial market grades. Most of the companies use the integrated approach, supplemented by value-added, so that high-performance capital levels can be broken and the company can capitalize on the benefits of electronic trade. A company that operates with firm financial risks may need such hedges against foreign costs and profits. The dividend hedge serves a large number of local and international operating companies as a tool for the management of revenue risks. Long-term hedge dividends and short-term export revenues assist in risk management. Dividend hedges, such as independent formation, vertical integration, and cooperative strategies, can be utilized for suitable prospect scale and risk control. Hedging the peaceful flow on the foreign trade and the capital account of the balance sheet by way of forward sales and/or swaps and adaptation leads to a hedge, which allows for the management of the firm-trade gaps. Hedging sales is essential to hedge spoilage firms effectively. Hedging obsolescence cover assists the companies in protecting against the depreciation of their currencies.

Notwithstanding the fact that a laser edge optimally spreads backers’ payroll to equities, the optimal rate of investment to allow for the exporter’s status is different from the initial riskless rate. A growing number of papers on corporate financial risk management have focused on exchanging rates. Carel Oosthuizen and Douw G. Boshoff examine a diverse hedging object: the dividend stream of an export project or firm. They show that the benefits of hedging dividends increase when uncertain exchange rates interact with the perceived risk of declining demand for or lower foreign sales prices.

Forex trading can bring huge potential for profit to big companies, and even a marginal gain can be in the millions for corporate houses that trade in forex markets. From hotels and corporations to airlines and even trading, the so-called ‘forex risk’ can play a good role. To protect the business, companies use different strategies to cut losses and try to remain domestic. At any time, every company follows some hedging practices—an act of preventing financial assets and revenue or profit opportunities from being eroded. Hedging can be done for various reasons, such as risk management, competitive bidding, investment strategy, etc. Hedging is the avoidance of currency risk or speculation. The majority of companies adopt different strategies to hedge the risk, and some of them do not entirely hedge.

2.1.   Hedging Strategies

risk-reversal trading strategies. This is a complex forex trading implementation that is profitable when executed correctly. It involves effectively seeking more than one result that you are comfortable with and balancing the trade for a loss on one side. One of the most common risk reversal trading schemes is selling out-of-the-money options and purchasing solutions regarding the entire traded sum and exchanging.

natural hedge or matching. Companies use this approach to manage their currency exposure. They can use their foreign operations to minimize the currency exchange-related effects. This approach implies matching sales (in foreign currency) with purchases (in foreign currency). When invoices are in the same currency, there is no need for forex trading.

Hedging is a popular method of limiting currency fluctuation risks among big corporations. Hedging strategies are robust risk management techniques that require businesses to pay a premium. Although those buying the policies will lose money, the net loss is generally much less than it would have been without the agreement. Following are the key hedging techniques applied in forex trading among big companies.

2.2.   Diversification Techniques

In these terms, in big companies that push forex trading towards devoting essentially country currency alignment with assets, there are some ‘natural hedges’. In this case, by trading on premium, the company tries to reduce the impact of fluctuations in the FX rate on its portfolio performance. The company tries to obtain pure absolute return, limiting directional movement, which can show a fall in the portfolio’s performance. However, the investor faces volatility risk because some part of the trading contributes towards increasing VaR. As can be seen, trading foreign exchange premiums is an identification characteristic of a subset of a big company’s forex transactions. Rather than being based upon the economic point of view—highly accessed by empirical observations of funds trading in the market and focused on the choice between different hedging strategies—it takes us to figure out practical approaches for a company to apply in groups of individuals with a high risk-reward mentality and willing to create their own speculation on premium risk. In fact, the following question can be posed: how can a big company diversify its premium trades around the world?

Academic literature argues that because these flows mainly respond to strong economic reasons, companies are able to forecast and hedge part of the foreign exchange risk. In fact, from a theoretical point of view, the spontaneous approach does not seem to be useful in several cases when the activities or transactions cause unfamiliar foreign exchange exposures. As a result, it seems important to educate appropriate strategies to reduce or distribute the risks interrelated with foreign exchange operations in the company as well as possible. A successful atmosphere could indeed help to gain high benefits. In other words, getting a solution for the reduction of these risks is not only significant for the return to the fundamentals of management investment but also for the maximization of the company’s wealth. This point is particularly important because, from the perspective of the corporate governance system, the techniques to reduce country risk seem to be straightforward in big companies. Managing premium risk allows the company to survive in bad market conditions.

3. Regulatory Compliance and Reporting Requirements

The specific compliance and reporting obligations imposed on big companies primarily depend on the jurisdiction(s) where the business is established and where it chooses to operate in forex transactions. Below is a presentation of the regulatory framework applicable to big companies engaged in forex trading in the United States of America. There are many state laws and regulations relating to business forex trading and so many federal laws that trying to collate any of them is a meaningful and possibly hazardous transaction. At the federal level in the United States, there is no single forex trading statute but a range of different federal laws and regulations relating to foreign trading based on the trading parties and the trading volume and/or instrument. Federally regulated forex transactions are likely to revolve around margin trading, regulated or guaranteed contracts, retail trading, and money-transmitter or money-service business (MSB) duties. At the subnational level, U.S.

state laws governing OFEs are types of anti-money laundering (AML) statutes and regulations or forex trading businesses capitalization, margin requirements, business licensing, and operating standards. It is particularly crucial for the big company upon whose treasurer the Forex Rules and Regulations apply and the big company dealing with contracts for difference (or traders of contracts for difference to be dealt with) that they specifically review the knowledge of their general counsel, the U.S. Commodity Futures Trading Commission, and other U.S. regulatory forex trading laws, treaties, regulations, and legislation, keep abreast of changes under their umbrella, and address the required legal advice that all contracts for difference are, in fact, under any of these laws or regulations.

Compliance and reporting obligations

Big companies have internal rules and integrity responsibilities compelling them to make use of various financial instruments. They must behave appropriately within their respective national legal frameworks, especially if such commercial operations characterize them as speculators. Big-company law-specializing legal scholars often point out the legal and judicial consequences of the foreign exchange elements in these issues to entrepreneurs and managers.

4.Technology Solutions for Efficient Forex Trading

To work successfully, a leadermust first select the most suitable technological solutions for themselves. There are many specialized internet resources, and high-quality programs and reliable software can be downloaded freely or for a fee. The newer and more advanced technological solution is also hosted on some of these trading websites and platforms. They operate particularly efficiently and boost internet trading for money, but are mostly required to be installed, at least partially, on the customer’s personal computer. This imposes a significant responsibility in considering the need for technical and software quality issues. Besides deciding strategic and tactical issues related to cash management, it is also necessary to thoroughly plan investments in both the equipment and software of an organization. Even the new software that implements forex trading solutions could theoretically serve as a redundancy or substitute for the use of a commodity. From the somewhat advanced solution, a business leader could, in fact, have nothing to control its products or just the possibility of partial grouping exchanges. This approach is mainly associated with the ethical management of the corporation’s available assets. In reality, good working hardware arrangements are required for large companies in order to meet any given agreement in a timely manner.

Leaders in operating businesses can’t really just rely on their personal talent if they want to make profits on the free currency market. The role of the leader in the organization now is not only associated with strategic management and personnel management but also with capital management. That’s why big companies make every effort to develop and implement their forex trading strategy.

5.    Case Studies and Success Stories

Bausch & Lomb Surgical Supplies Division This division of the well-known Rochester, NY, company Bausch & Lomb is one of many “baby” companies making profitable “nice” medical devices. This happens to be 50 miles from where I reside. The Forex Manager’s name is Doug Holmes. Reporting to him are five professional analysts and traders. The company owns an office building and parking lot. It also owns the first floor of a 20-story building, where the computerized trading and decision-making are done.

Shell Gasoline Operations One small Shell gasoline operations office in the city of Miami handles over a billion dollars every day in foreign commercial trade for over 1000 Shell gasoline outlets in the 13 southeastern states and the Caribbean area. At the helm is a brilliant moving force, a great multiplier for any company that is lucky to have him: 43-year-old New York City-born William (Bill) McCloskey. He and his team of 30 professionals are currently responsible for maximizing Shell’s profits by buying cheap, selling dear, and, in advance, overloading trucks on three shifts 24/7. Gasoline arrives and enters the underground tank systems for the next day’s anticipated sales. The volatile, eerily fascinating world of foreign exchange and currency speculation accounts for the bulk of the buying and selling decisions. The 30-person office is totally paperless thanks to IS technology. The Treasury Department is grouped with the “Back End” for trading and decision-making to expedite information flow.

Case studies and success stories Although we have cited best practices and strategies used by many big international companies, we have never before cited specific cases or specific companies by name. However, we are gradually receiving requests from some big international companies asking us for CEO profiles of global professors we know personally. In this section, we present success stories only.