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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

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Presentation Transcript
slide1

Hedging Opportunities

the new generation

slide2
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

possible fx exposure types
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
possible hedging tools
Forward Deal

Buy Vanilla Option

Vanilla strategy (e.g. Risk Reversal)

Buy a Knock Out Option

Exotic Strategies

Possible Hedging Tools
comparing forwards and options
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
comparing forwards and options1
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
illustration
A European corporate is selling goods to a corporate in Great Britain.

The corporate will receive 10 Million GBP in 9 months’ time

Illustration
illustration1
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
illustration2
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
forward
Forward
  • Sell 10 Million GBP against EUR at a strike of 1.49, on the 27 of June 2006
buy vanilla gbp put atm
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)
risk reversal1
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
buy 1 4890 euro put with 1 49 ko
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
regulations accounting standards
Increasing regulations (FAS 133, IAS 39) require special attention by CFO’s and Treasurers to possible Fx exposureRegulations & Accounting Standards
exotic options strategies for corporates why
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?
exotic options hedging strategies
Forward Extra

Window

European Knock In

Step Premium

Improver

Exotic options hedging strategies
critical hedging tools
Historical Data

Volatility Surface

Risk Management Tools

Reporting

Mark to market facility

Critical Hedging Tools
summary using sd fx
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