The Currency Derivatives Market必看课件资料.ppt

Essential Reading P172-181 Currency Derivative Currency Forward Currency Future Currency Options Forward Contract A forward contract is an agreement between a corporation and a commercial bank to exchange a specified amount of a currency at a specified exchange rate (called the forward rate) on a specified date in the future. Forward Contract When a firm anticipate future need or future receipt of a foreign currency, they can set up forward contracts to lock in the exchange rate, hedge the risk. Forward Market Forward contracts are used to reduce the risk that foreign exchange rate change will adversely affect transactions that will be settled in the future. Eg. Assume an American car dealer expects to import ten Jaguar motor cars in 90 days from now. The Jaguar Motor car company quotes a price for ten cars at ￡335,570.The current spot rate is $1.49/ ￡.And the forward rate quoted for 90 days is $1.4867/ ￡. How will the company hedge the risk? Forward Contract If change GBP into USD at spot rate, the company has to pay: 335,570x1.49=$500,000 (2): The importer can buy ￡335,570 forward for 90 days: 335,570x1.4867=$498,892 In 90 days’s time, the importer has to deliver $498,892 (3)Suppose the pound appreciates to $1.60 during the 90 days, the cars would cost the company the following amount: 1.60x335,570=537,000 The company has saved more than $1,000 on the original contract to avoide a loss of $37,000. Forward Contract Example: XYZ company, a US manufacturer receives a purchase order from a customer in England on Jan.10th. The invoice is ￡50,000 and payment is due on June 10th. The current spot rate is $1.5530, and the forward rate is $1.5450 for six months. If change at spot rate: 1.5530x50,000=77,650 The firm will sell ￡50,000 for a maturity window of June 10th through July 9th: 50,000x1.5450=$77,250 Forward Market A non-deliverable forward contract (NDF) is a forward contract whereby there is no actual