A currency swap involves the exchange of interest - and sometimes principal - in one currency for the same thing in another currency.
Companies doing business abroad often use currency swaps to get better rates on local currency loans than if they borrowed money from a local bank.
By law, currency swaps, which are considered a foreign exchange transaction, should not be reflected in the company’s balance sheet.
Changes in interest rates for currency swaps include a fixed rate for a fixed rate, a floating rate for a floating rate, or a fixed rate for a floating rate.
Natural hedging is a strategy aimed at reducing risk by investing in assets whose performance is negatively correlated through some internal or natural mechanism.
Performance Based Management (ABM) is a means of analyzing a company’s profitability by looking at every aspect of its business to determine its strengths and weaknesses.
Share capital is the number of ordinary and preferred shares that the company has the right to issue and which are accounted for on the balance sheet as part of share capital.
A collar is an options strategy that involves buying a put option down and selling a put option up, which is used to protect against large losses but also cap large profits up.
The cost of capital represents the return that a company must earn to justify the cost of a capital project such as buying new equipment or constructing a new building.