Nghiên cứu về công cụ giảm thiểu rủi ro thanh toán quốc tế (HEDGING)

ANALYSIS KINDS OF HEDGING GROUP Hoang Dieu Linh Pham Thi Phuong Hoang Thi Hoa Dao Thi Phuong Pham Huong Thao Pham Thi Thu Phuong Le Thi Thuong Doan Thi Bich Thao Nguyen Thi Lam Oanh 10.Bui Thi Thuy Linh 11.Nguyen Thi Phuong Thao Forex hedging strategy A forex hedging strategy : developed in four parts, including an analysis of the forex trader's risk exposure, risk tolerance and preference of strategy Components: • Analyze risk • Determine risk tolerance • Determine forex hedging strategy • Implement and monitor the strategy  common method of hedging: Forward Market, Money Market, Options Market FORWARD MARKET FORWARD MARKET Definition • is an over the counter marketplace that sets the price of a financial instrument or asset for future delivery • ….used for trading a range of instruments: currencies and interest rate, as well as assets such as commodities and securities FORWARD MARKET Example Next year, want to buy… MR.THANH I have want to sell… (same period) MR.TUAN Tuan agreed to sell after year with 104,000 USD After year, assuming market value of the house at the time was 110,000 USD, while Mr.Tuan is obligated to sell the house for 104,000 USD for Mr.Thanh following to contract FORWARD MARKET Characteristics of forward market • Transaction Method is direct negotiations • One party agrees to purchase, the other party agrees to sell, with a fix price is agreed in advance, but no actual cash payment at the time when the contract signed • Two parties are obligated to perform the contract • The term of contract: very flexible FORWARD MARKET Characteristics of forward market • No payment before the contract expires • Prices is fixed during the term of the contract, no change • Choose flexible time to pay money • The tenor price in the future negotiate at the moment • Implementation (delivery and payment) occurs when contract expires FORWARD MARKET Advantages and disadvantages of forward Advantages Disadvantages • Don’t depend on rise and • Because of fixed rate, so decline of exchange rate both parties will not have chance to gain benefit from • The term of contract is very flexible changing the exchange rate • Don’t need to cost in advance • Difficult to negotiate • Two parties take part in the • Difficult for businesses if contract, to reduce cost for they want to end the 3rd party invited to contract before the contract participate in contracts expires FORWARD MARKET Application of Forward Market Hedging Tourist – Travel Agency • At one given time in the future, tourist must pay for travel agency the price of the product/service that they have signed with the agreed price whether they use the product/ service or not • Travel agency must provide the right products/services to tourist in accordance with pre-defining OPTION MARKET Application in Tourism : Call Option Example • A is worry about USD/JPY increase  the price of tour increase • A negotiate with B about buying a call option: tour price 105,000 JPY/person on 30/07, premium: 10,000 JPY/person 30/07/2016 • Exchange rate USD/JPY = 100 • Price of tour: 1000 USD/person = 100 000 JPY/person OPTION MARKET Application in Tourism : Call Option Example A have two options Do the contract with B  A have to pay 105 000 JPY /person Not the contract with B  A can buy tour from another TO with price : 100 000 JPY/person .A choose the selection .A have the right: or not the contract with B, and select the most benefit MONEY MARKET HEDGE MONEY MARKET HEDGE Definition • The use of borrowing and lending transactions in foreign currencies to lock in the home currency value of a foreign currency transaction EUR Supplies Spanish company American company • It could use a money market hedge to lock in the value of the euro relative to the dollar today MONEY MARKET HEDGE How money market hedge works A company has the alternative of using a money market hedge if: • forward market hedges are not available or too expensive • futures market hedge carries too much risk of insolvency Conditions for use: • Firms have access to money market for different currencies • The dates of expected future cash flows and money market transaction maturity match MONEY MARKET HEDGE How money market hedge works Case 1: If a foreign currency payment has to be made after a defined period of time, the following steps have to be taken to hedge currency risk via the money market Borrow the domestic currency in an amount equivalent to the present value of the payment Convert the domestic currency into the foreign currency at the spot rate Place this foreign currency amount on deposit When the foreign currency deposit matures, make the payment MONEY MARKET HEDGE How money market hedge works Example Suppose you live in the U.S and intend on taking your family on that long-awaited European vacation in six months You estimate the vacation will cost about EUR 10,000 The current EUR spot rate is 1.35, but you are concerned that the euro could appreciate to 1.40 to the USD or even higher in six months => raise the cost of your vacation by about US$500 or 5% => You decide to construct a money market hedge MONEY MARKET HEDGE How money market hedge works Example You need to pay ~ EUR 10,000 in months The current EUR spot rate is 1,35 Borrows $13,43284 Borrows at 1,75% for months Effective locked in a months rate of 1,355037 Convert this at the spot rate 1,35 Holds EUR 9950,25 Pays $1355037 Deposits at 1% for months Receives EUR 10,000 MONEY MARKET HEDGE How money market hedge works Case 2: If a foreign currency receivable is expected after a defined period of time and currency risk is desired to be hedged via the money market, this would necessitate the following steps Borrow the foreign currency in an amount equivalent to the present value of the receivable Convert the foreign currency into domestic currency at the spot exchange rate Place the domestic currency on deposit at the prevailing interest rate When the foreign currency receivable comes in, repay the foreign currency loan (from step 1) plus interest MONEY MARKET HEDGE How money market hedge works Example: Consider a small Canadian company that has exported goods to a U.S customer and expects to receive US$50,000 in one year The current exchange rate of US$1 = C$1.10 as favorable, but he thinks that the Canadian dollar may appreciate over the year ahead => fewer Canadian dollars for the U.S dollar export proceeds when received in a year’s time => He decides to construct a money market hedge MONEY MARKET HEDGE How money market hedge works Example The Canadian expects to receive US$50,000 in year The current exchange rate of US$1 = C$1.10 Borrows US$49,140.05 Borrows at 1,75% for year Convert this at the spot rate 1.10 Holds C$54,054.05 Pays $50,000 Effective locked in a year rate US$1 = C$1.10 Deposits at 2,5% for year Receives C$55,405.41 MONEY MARKET HEDGE Advantages and disadvantages Advantages Liquidity • • fixed-income securities with short-term maturities of a year or less, money market instruments are extremely • liquid Fixes amount exactly • allows the domestic company to lock in the value of its partner’s currency in advance of an anticipated transaction Disadvantages More complicated than regular currency forwards, since it is a step-by-step deconstruction of the latter There may also be logistical constraints for a substantial loan amount and placing foreign currencies on deposit MONEY MARKET HEDGE Applications of money market hedge Exchange risk • In tourism, can be used by tourist who wants to travel abroad in near future (maybe months) • The foreign currency exchange rate might be higher in near future which would raise the cost of their vacation • By using the money market hedge, they have effectively locked in a six-month forward rate (example in case 1) This technique can be also used by small travel agency Distinguish between three hedging Hedging payables Forward market hedge Money market hedge Currency option Hedging receivables Negotiate forward contract to buy foreign currency Negotiate forward contract to sell foreign currency Borrow local currency Convert to and then invest in foreign currency Borrow foreign currency Convert to and then invest in local currency Purchase currency call option(s) Purchase currency put option(s) Thanks for your attention [...]... they will pay exactly the price that be signed in the contract • The hotel has to provide all the rooms as well as accompany services to travel agency FORWARD MARKET Application of Forward Market Hedging Example Meme hotel Travel agency Bath Room 1/9 sign contract (THB/VND = 625.05) • Cactus travel agency book 10 single rooms • at 4* Meme hotel in Thailand • 22 – 24/10 • Total price : 12 million VND... the year ahead => fewer Canadian dollars for the U.S dollar export proceeds when received in a year’s time => He decides to construct a money market hedge MONEY MARKET HEDGE How money market hedge works Example The Canadian expects to receive US$50,000 in 1 year The current exchange rate of US$1 = C$1.10 1 Borrows US$49,140.05 Borrows at 1,75% for 1 year Convert this at the spot rate 1.10 2 Holds C$54,054.05... with B  A have to pay 105 000 JPY /person 2 Not do the contract with B  A can buy tour from another TO with price : 100 000 JPY/person .A choose the selection 2 .A have the right: do or not do the contract with B, and select the most benefit MONEY MARKET HEDGE MONEY MARKET HEDGE Definition • The use of borrowing and lending transactions in foreign currencies to lock in the home currency value of... HEDGE How money market hedge works Example Suppose you live in the U.S and intend on taking your family on that long-awaited European vacation in six months You estimate the vacation will cost about EUR 10,000 The current EUR spot rate is 1.35, but you are concerned that the euro could appreciate to 1.40 to the USD or even higher in six months => raise the cost of your vacation by about US$500 or 5%... or 5% => You decide to construct a money market hedge MONEY MARKET HEDGE How money market hedge works Example You need to pay ~ EUR 10,000 in 6 months The current EUR spot rate is 1,35 1 Borrows $13,43284 Borrows at 1,75% for 6 months Effective locked in a 6 months rate of 1,355037 Convert this at the spot rate 1,35 2 Holds EUR 9950,25 3 Pays $1355037 Deposits at 1% for 6 months 3 Receives EUR 10,000... would necessitate the following steps 1 Borrow the foreign currency in an amount equivalent to the present value of the receivable 2 Convert the foreign currency into domestic currency at the spot exchange rate 3 Place the domestic currency on deposit at the prevailing interest rate 4 When the foreign currency receivable comes in, repay the foreign currency loan (from step 1) plus interest MONEY MARKET... RMB/VND=3.454 15/11 19/11 pay by VND with RMB/VND = 3.454 FORWARD MARKET Application of Forward Market Hedging Travel agency – Travel agency Ensure the provision and implementation of exactly what was agreed upon in the forward contract on the exchange of products and services OPTION MARKET OPTION MARKET Definition • An option is a contract that gives the buyer the right, but not the obligation, to buy... foreign currencies to lock in the home currency value of a foreign currency transaction EUR Supplies Spanish company American company • It could use a money market hedge to lock in the value of the euro relative to the dollar today MONEY MARKET HEDGE How money market hedge works A company has the alternative of using a money market hedge if: • forward market hedges are not available or too expensive... How money market hedge works Case 1: If a foreign currency payment has to be made after a defined period of time, the following steps have to be taken to hedge currency risk via the money market 1 Borrow the domestic currency in an amount equivalent to the present value of the payment 2 Convert the domestic currency into the foreign currency at the spot rate 3 Place this foreign currency amount on... continuously in a while OPTION MARKET Application in Tourism: Put option Example Tours (New york - London) Tour operator X 10,000 USD/ticket • Travel agent Y X see that The United Kingdom intends to withdraw from EU  GBP/USD rate (1GBP=1.23 USD)  tour ticket price can decrease • X negotiate with Y  buying a put option: 10,000 USD/ ticket in 1 months  X pay a premium of 500 USD/ ticket OPTION MARKET Application ... agency the price of the product/service that they have signed with the agreed price whether they use the product/ service or not • Travel agency must provide the right products/services to tourist... The hotel has to provide all the rooms as well as accompany services to travel agency FORWARD MARKET Application of Forward Market Hedging Example Meme hotel Travel agency Bath Room 1/9 sign contract... Hedging Travel agency – Travel agency Ensure the provision and implementation of exactly what was agreed upon in the forward contract on the exchange of products and services OPTION MARKET OPTION MARKET