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A corporate FX transaction involves a bank, on behalf of their corporate client, paying for the currency it sold at an agreed rate to another bank and receiving a different currency in return for the funds being cleared and settled in the local clearings.

Cross-currency settlement risk is a type of settlement risk in which a party involved in a foreign exchange transaction sends the currency it has sold but does not receive the currency it has bought. In cross-currency settlement risk, the full amount of the currency purchased is at risk.

Settlement currency is the currency a vendor selects to be paid out in and the currency in which funds are sent to the vendor's bank account. You can have one settlement currency or multiple, depending on the functionality of your payment processor and the availability of accounts.

The transaction currency is the currency that you will be purchasing and selling in a foreign exchange market. If there are any gains or losses pertaining to the foreign exchange transaction, it is applied to the settlement currency.

The transaction currency multiplied by the exchange rate will indicate the settlement currency amount for the transaction. Example: An order to buy 100,000 EUR. USD @ 1.353 has a settlement currency amount of USD 135,300 .

Example of a Forex Hedge For example, if a U.S. investment bank was scheduled to repatriate some profits earned in Europe it could hedge some of the expected profits through an option. Because the scheduled transaction would be to sell euro and buy U.S. dollars, the investment bank would buy a put option to sell euro.

The mark to market losses or profits are directly debited or credited to the CMs clearing bank account. On the expiry of the futures contracts, NSE Clearing marks all positions of a CM to the final settlement price and the resulting profit / loss is settled in cash.

Currency describes the money or official means of payment in a country or region. The best-known currencies include the U.S. dollar, euro, Japanese yen, British pound and Swiss franc.

Currency forward settlement can either be on a cash or a delivery basis, provided that the option is mutually acceptable and has been specified beforehand in the contract. Currency forwards are over-the-counter (OTC) instruments, as they do not trade on a centralized exchange, and are also known as outright forwards.

CLS provides a continuous mechanism for the simultaneous settlement of both sides of an FX deal. CLS operates as a Payment versus Payment (PvP) system. Time zone differences increase the risk of one party defaulting before both sides of the trade are settled.