1 / 21

Hedging Opportunities

Hedging Opportunities . the new generation. A corporate that engages in any business activity in a currency other than its own local currency, has a foreign exchange exposure. . Foreign Exchange Exposure. Every corporation has a foreign exchange exposure. This includes Importers

libra
Download Presentation

Hedging Opportunities

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Hedging Opportunities the new generation

  2. A corporate that engages in any business activity in a currency other than its own local currency, has a foreign exchange exposure. Foreign Exchange Exposure

  3. Every corporation has a foreign exchange exposure. This includes Importers Exporters Companies that have taken a foreign loan Multinational companies that need to pay their employees salaries and taxes in different currencies. Possible FX Exposure Types

  4. Forward Deal Buy Vanilla Option Vanilla strategy (e.g. Risk Reversal) Buy a Knock Out Option Exotic Strategies Possible Hedging Tools

  5. Forwards: Underlying exposure is offset by engaging in a Forward deal Obligation to exchange funds on maturity date No future potential of additional gains from market fluctuations Comparing Forwards and Options

  6. Options No obligation to exchange the underlying asset on maturity date (for the buyer) Vast possibilities of tailoring unique solutions according to specific needs (OTC) Opportunity to highly leverage one’s position Comparing Forwards and Options

  7. A European corporate is selling goods to a corporate in Great Britain. The corporate will receive 10 Million GBP in 9 months’ time Illustration

  8. Analysis: Receivables in GBP, cost base in EUR The European company needs to convert these GBP into EUR The European company will lose money if GBP/EUR rate depreciates Illustration

  9. Hedging possibilities: Forward Deal- Sell 10 Million GBP against EUR settling in 9 months at a fixed rate Buy a Put GBP Call EUR Option Enter into a Vanilla Strategy (Typically a Risk Reversal) Exotic Option Strategies Illustration

  10. Forward • Sell 10 Million GBP against EUR at a strike of 1.49, on the 27 of June 2006

  11. Buy Vanilla EUR Put

  12. A European company will profit if GBP/EUR trades above the Forward Rate @ expiry Full protection from Strike price downwards Buy Vanilla GBP Put (ATM)

  13. Risk Reversal

  14. A European company will profit if GBP/EUR trades above the Forward Rate and below 1.4880 (the SP of the sold Call GBP option @ expiry) Full protection from Strike price of the Put Euro option downwards No initial hedging costs (“Zero Cost”) Risk Reversal

  15. Buy 1.4880 GBP Put with 1.4913 KO

  16. A European company will profit if GBP/EUR trades above the Forward Rate @ expiry Full protection from Strike price downwards Smaller hedging cost on inception date Buy 1.4890 Euro Put with 1.49 KO

  17. Increasing regulations (FAS 133, IAS 39) require special attention by CFO’s and Treasurers to possible Fx exposure Regulations & Accounting Standards

  18. Enables a hedger to decrease hedging costs A highly customizable hedging solution Provides the opportunity to create mixed strategies (Vanilla & Exotic – e.g. buy a vanilla, sell an exotic) Exotic options strategies for corporates – why?

  19. Forward Extra Window European Knock In Step Premium Improver Exotic options hedging strategies

  20. Historical Data Volatility Surface Risk Management Tools Reporting Mark to market facility Critical Hedging Tools

  21. FX options can enable hedgers to profit from market fluctuations, customize tailor made solutions, while being completely hedged SD-FX allows you to price these options accurately and to abide by the accounting regulations For more details please contact: Irene Zaslavsky Tel: +44(0)20 7724 4167 i.zaslavsky@superderivatives.com Summary – Using SD-FX

More Related