Hedging Using Crrency Derivatives使用货币衍生品套期保值.pptVIP

Intermediate Investments F303 Hedging Using Currency Derivatives Foreign currency futures are traded on the Chicago Mercantile Exchange Examples of the size of certain contracts include: British Pound: 62,500BP Canadian Dollar: 100,000CD Euro 125,000Euros Japanese Yen 12,500,000Y Swiss Franc 125,000CHF Australian Dollar 100,000AD Mexican Peso 500,000MP Hedging Using Currency Derivatives Contract delivery months are: March June September December Prices are normally quoted as USD per unit of foreign currency. So, for example: USD/CHF = 0.60053 or 1.66 CHF = 1 USD USD/Y = 0.007592 or 131.72 JPY = 1 USD USD/BP = 1.43160 or .699 BP = 1 USD USD/Euro 0.9062 or 1.104 Euro = 1 USD When Might You Hedge a Foreign Currency Transaction? Anytime your assets and liabilities are in different currencies Let’s say your accounts receivable are in a foreign currency, but your accounts payable are in the domestic currency Consequently, you are expecting receipts in one currency, but expect to make your payments in another Use a Futures contract to lock in a rate. Remember: you are locking in an effective rate. You now have 2 distinct transactions which will offset each other to provide the effective rate you’ve locked in! Example of a Foreign Currency Hedge Make the following assumptions: It is December 31 and your company has just signed a contract to sell 25 large earthmovers to a German mining company with delivery in exactly 6 months Delivery price is EUR 25.0M Delivery and payment of the earthmovers will be the end of June Current USD/EUR exchange rate is 0.87936 Price of a June contract for EUR is .8767 In this particular case, You must make an initial outlay of USD $21M which you can borrow at 7.1225% Should you undertake the project? Example of a Foreign Currency Hedge (cont) You borrowed USD $21M to get the project started. How much must you repay in 6 months if the annual interest rate is 7.1225%? In order to break even, what must the Spot