1 / 24

Managing Transaction Exposure

Managing Transaction Exposure. Exposure = Risk Managing Risk = “Hedging”. Types of FX Exposure. Hedging With…. Transaction Risk Example. Foreign RECEIVABLES: Boeing (USA) sells 747 Jet to British Airways (UK) for £10m payable in 1 year. Forward Market Hedge.

armani
Download Presentation

Managing Transaction Exposure

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. Managing Transaction Exposure Exposure = Risk Managing Risk = “Hedging”

  2. Types of FX Exposure

  3. Hedging With…..

  4. Transaction Risk Example Foreign RECEIVABLES: Boeing (USA) sells 747 Jet to British Airways (UK) for £10m payable in 1 year.

  5. Forward Market Hedge

  6. Unhedged Position vs. Forward Hedge

  7. Forwards vs. Futures For hedging transaction risk, forward contracts are better than futures contracts because…

  8. Money Market Hedge Borrow in the foreign country to offset the future foreign receipt of money. *Note: For comparison, all money flows must be expressed at a single point in time; i.e. one year from now.

  9. Options Market Hedge

  10. UK£ Put Option Payouts (Proceeds) * Note future cost of call = ($0.02x$10m)x1.061 = $212,200. The one-year future value is calculated to match it in time with all other cash flows.

  11. Option Hedge (put + receivable)Payout Function FV of call cost = $212,200

  12. Review of Alternate Hedging Strategies

  13. Transaction Risk Example Foreign PAYABLES: Boeing (USA) buys a Rolls Royce (UK) engine for £5m payable in 1 year.

  14. Payables Example (cont.)

  15. Hedging Contingent Exposure

  16. Contingent Exposure: Hedging Strategies

  17. Swap Contracts

  18. Hedging With Operational Techniques

  19. Should Firms Hedge? NO – Because….

  20. Should Firms Hedge? YES – Because….

  21. Actual Hedging Strategies Used

More Related