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Showing posts from January, 2018

What Do You Mean By Exchange Rate Risk?

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Exchange rate risk is incurred due to changes in the exchange rate of domestic currency relative to a foreign currency. When a domestic investor invests in foreign assets, or a foreign investor invests in domestic assets, the investment of HNI traders is subject to exchange rate risk.  It must be noted that: If domestic currency depreciates (falls in value) against foreign currency, the value of foreign asset goes up in terms of domestic currency and the value of domestic assets in terms of foreign currency goes down. If domestic currency appreciates (increase in value) against foreign currency, the value of foreign asset goes down in terms of domestic currency and the value of the domestic assets in terms of foreign currency goes up. Consider this example. An NRI based in the US invests $1000 in a  bank deposit in India at10% for 1 year when the exchange rate is Rs. 60 per US$. After one year, the rupee depreciates and the exchange rate is Rs. 67 per US$. What is the risk t

About financial advisors

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Financial advisors may engage with their clients at various levels and the scope of services they offer may vary depending on their skills, capabilities and business model. In several countries, including India, there has been regulatory action in defining the role of various intermediaries that deal with investors. When a relationship manager, financial advisor, wealth manager or other entity, irrespective of the nomenclature used, sells financial products to a client as part of his defined role or business, and earns a commission from the producer of the financial product, there is a potential conflict of interest.  The seller of the product may not act in the interest of the client, but may push products that earn a higher commission. This may lead to mis-selling, where a product not suitable to the client’s needs, or not in line with the client’s risk preference may be sold in a manner harmful to the customer’s interest. The financial advisor has to take utter care about