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1、PAPERP4DECEMBER2011REVISIONCOURSEEXCHANGERATERISKMANAGINGTRANSACTIONEXPOSURE:*invoiceinsterling*matchreceiptsandpayments/intra-groupnetting*leading&lagging*forwardmarket*moneymarket*futuresmarket*optionsmarketFORWARDCONTRACTExample1January,UKexportersellstoUScustome
2、rfor$10Mon3monthscredit.Spot$/£1.4695–1.47053mforward$/£1.4652–1.4667[Otherwaysofquotingspot:1.4700±0.0005orMid-pointBid/offerspread1.4700695–705]Forlatestcoursenotes,freeaudio&videolectures,supportandforumspleasevisitPAPERP4DECEMBER2011REVISIONCOURSEEXCHANGERATERIS
3、KMONEYMARKETExampleUKcompanytoreceive$100Kin3monthstime.Current3monthsinterestrates:USPrime2.7%(p.a.)UKLIBOR1.8%(p.a.)Currentexchangerate$1.47to£Howcancompanyhedgeagainstexchangeraterisk?[Note:togetquarterlyinterestrate,divideannualratebyfour.Noneedtoallowforcompoun
4、dingeffect.]Forlatestcoursenotes,freeaudio&videolectures,supportandforumspleasevisitPAPERP4DECEMBER2011REVISIONCOURSEFORWARDCONTRACTAnswertoexample:Receive$,souse$sellrate:$10M÷1.4667=£6,818,027[Exchangeratefixednowforconversionin3monthstime]MONEYMARKETAnswertoexamp
5、le:1.Borrownowonthestrengthofthe$100kreceipt:Amountborrowed=$100,000÷1.00675=$99,33027.%[=0.%675]42.Convertnowatspot$99,330÷1.47=£67,5713.Deposit£nowfor3months:£67,571×1.0045=£67,875£67,875isafixedreceiptin3monthstime.Forlatestcoursenotes,freeaudio&videolectures,sup
6、portandforumspleasevisitPAPERP4DECEMBER2011REVISIONCOURSEEXCHANGERATERISK:CURRENCYFUTURES(EXAMPLE)AUKcompanywillreceive$2.5MfromanAmericancustomerin3monthstimeattheendofFebruary.Futures:$/£contracts(£62500)December1.5830$/£March1.5896$/£Currentspotrate:1.5842-1.5852
7、Demonstratehowafutureshedgewouldwork.(assumespotinFebruaryis1.6005–1.6015)Forlatestcoursenotes,freeaudio&videolectures,supportandforumspleasevisitPAPERP4DECEMBER2011REVISIONCOURSEEXCHANGERATERISK:CURRENCYFUTURES(ANSWER)Step1Asareferencepoint,convertatthecurrentspotr
8、ate(thisisonlynecessaryifrequiredtocalculatehedgingef-ficiencylater):$2.5M÷1.5852=£1,577,088Step2Writedownwhatfuturesdealwillbestarted“tod
