国际财务管理英文课件：Chap008 Management of Transaction Exposure

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1、McGraw-Hill/IrwinCopyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.Management of Transaction ExposureChapter Eight8-28-2Chapter Outline Forward Market Hedge Money Market Hedge Options Market Hedge Cross-Hedging Minor Currency Exposure Hedging Contingent Exposure Hedging Recurrent

2、 Exposure with Swap Contracts Hedging Through Invoice Currency Hedging via Lead and Lag Exposure Netting Should the Firm Hedge? What Risk Management Products Do Firms Use?8-38-3Forward Market Hedge: Imports If you expect to owe foreign currency in the future, you can hedge by agreeing today to buy t

3、he foreign currency in the future at a set price by entering into a long position in a forward contract.Forward Contract CounterpartyImporterForeign SupplierForeign currencyGoods or Services Foreign currencyDomestic Currency8-48-4Forward Market Hedge: Exports If you are going to receive foreign curr

4、ency in the future, agree to sell the foreign currency in the future at a set price by entering into short position in a forward contract.Forward Contract CounterpartyExporterForeign CustomerGoods or Services Foreign CurrencyDomestic CurrencyForeign Currency8-58-5Importers Forward Market HedgeForwar

5、d Contract CounterpartyU.S. ImporterItalian Supplier1,000,000Shoes 1,000,000$1,500,000A U.S.-based importer of Italian shoes has just ordered next years inventory. Payment of 100M is due in one year. If the importer buys 100M at the forward exchange rate of $1.50/, the cash flows at maturity look li

6、ke this:8-68-6Exporters Futures Market Cross-Currency HedgeYour firm is a U.K.-based exporter of bicycles. You have sold 750,000 worth of bicycles to an Italian retailer. Payment (in euros) is due in six months. Your firm wants to hedge the receivable into pounds.CountryU.S. $ equiv.Currency per U.S

7、. $Britain (62,500) $2.0000 0.50001 Month Forward $1.9900 0.50253 Months Forward $1.9800 0.50516 Months Forward $2.0000 0.500012 Months Forward $2.1000 0.4762Euro (125,000) $1.4700 0.68031 Month Forward $1.4800 0.67573 Months Forward $1.4900 0.67116 Months Forward $1.5000 0.666712 Months Forward $1.

8、5100 0.6623Sizes of forwards on this exchange are 62,500 and 125,000. 8-78-7 The exporter has to convert the 750,000 receivable first into dollars and then into pounds. If we sell the 750,000 receivable forward at the six-month forward rate of $1.50/, we can do this with a SHORT position in 6 six-mo

9、nth euro futures contracts.6 contracts = 750,000125,000/contract Selling the 750,000 forward at the six-month forward rate of $1.50/ generates $1,125,000:$1,125,000 = 750,000 1$1.50lAt the six-month forward exchange rate of $2/, $1,125,000 will buy 562,500. We can secure this trade with a LONG posit

10、ion in 9 six-month pound futures contracts:9 contracts = 562,50062,500/contractExporters Futures Market Cross-Currency Hedge8-88-8Exporters Futures Market Cross-Currency Hedge: Cash Flows at MaturityExporter Customer750,000 750,000 $1,125,000 Short position in 6 six-month euro futures on 125,000at $

11、1.50/1Long position in 9 six-month pound futures on 62,500 at $2.00/1 Bicycles$1,125,000562,5008-98-9Importers Money Market Hedge This is the same idea as covered interest arbitrage. To hedge a foreign currency payable, buy the present value of that foreign currency payable today and put it in the b

12、ank at interest. Buy the present value of the foreign currency payable today at the spot exchange rate. Invest that amount at the foreign rate. At maturity your investment will have grown enough to cover your foreign currency payable.8-108-10Importers Money Market HedgeA U.S.based importer of Italia

13、n bicycles owes 100,000 to an Italian supplier in one year. The spot exchange rate is $1.50 = 1.00. The one-year interest rate in Italy is i = 4%. The importer can hedge this payable by buyingand investing 96,153.85 at 4% in Italy for one year. At maturity, he will have 100,000 = 96,153.85 (1.04).$1

14、.501.00Dollar cost today = $144,230.77 = 96,153.85 100,0001.0496,153.85 = 8-118-11Importers Money Market Hedge$148,557.69 = $144,230.77 (1.03) With this money market hedge, we have redenominated a one-year 100,000 payable into a $144,230.77 payable due today. If the U.S. interest rate is i$ = 3%, we

15、 could borrow the $144,230.77 today and owe $148,557.69 in one year.$148,557.69 =100,000(1+ i)T(1+ i$)TS($/)8-12$144,230.77Importers Money Market Hedge: Cash Flows Now and at MaturityImporter SupplierbicyclesSpot Foreign Exchange Market100,000 $144,230.7796,153.85U.S Bank$148,557.69 Italia Bank100,0

16、00 T= 1 cash flowsdeposit i = 4%96,153.858-13$119,047.62Exporters Money Market HedgeExporter CustomershoesSpot Foreign Exchange Market100,000$119,047.6295,238.10U.S Bank$127,500.00Crdit Agricole100,000T= 1 cash flowsdeposit i$ = 7.10%95,238.10Borrow i = 5%An American exporter has just sold 100,000 w

17、orth of shoes to a French customer. Payment is due in one year.Interest rates in dollars are 7.10 percent in the U.S. and 5 percent in the euro zone.The spot exchange rate is $1.25/1.00. Use a money market hedge to eliminate the exporters exchange rate risk.8-148-14Importers Money Market Cross-Curre

18、ncy HedgeYour firm is a U.K.-based importer of bicycles. You have bought 750,000 worth of bicycles from an Italian firm. Payment (in euros) is due in one year. Your firm wants to hedge the payable into pounds.Spot exchange rates are $2/ and $1.55/The interest rates are 3% in , 6% in $ and 4% in , al

19、l quoted as an APR. What should you do to redenominate this 1-year -denominated payable into a -denominated payable with a 1-year maturity?8-158-15 Sell pounds for dollars at spot exchange rate, buy euro at spot exchange rate with the dollars, invest in the euro zone for one year at i = 3%, all such

20、 that the future value of the investment equals 750,000. Using the numbers we have: Step 1: Borrow 564,320.39 at i = 4%. Step 2: Sell pounds for dollars, receive $1,128,640.78. Step 3: Buy euro with the dollars, receive 728,155.34. Step 4: Invest in the euro zone for 12 months at 3% APR (the future

21、value of the investment equals 750,000). Step 5: Repay your borrowing with 586,893.20. (see next slide for where the numbers come from)Importers Money Market Cross-Currency Hedge8-168-16Where Do the Numbers Come From?586,893.20 = 564,320.39 (1.04) 728,155.34 =750,000(1.03)= $1,128,640.78 = 728,155.3

22、4 1$1.55564,320.39 = $1,128,640.78 $21The present value of the euro payable = The dollar cost of buying the present value of the euro payable todayCost today in pounds of the present dollar value of the euro payableFV in pounds of the cost in pounds of being able to pay the supplier 750,0008-17Impor

23、ters Money Market Cross-Currency Hedge: Cash Flows Now and at MaturityImporter SupplierbicyclesSpot Foreign Exchange Market750,000 564,320.39 $1,128,640.77 Spot Foreign Exchange Market $1,128,640.77 728,155.34 728,155.34 deposit i = 3%U.K Bank564,320.39586,893.20Italia Bank750,000 T= 1 cash flows8-1

24、88-18Options A motivated financial engineer can create almost any risk-return profile that a company might wish to consider. An important consideration when using options is the hedge ratio that we covered in the last chapter. Without due consideration of the hedge ratio, the careless use of options

25、 can undo attempts at hedging.8-198-19Using Options to Hedge: Exports A British exporter who is owed 100,000 in one period has many choices: Buy call options on the pound with a strike in dollars while also buying put options on the euro with a strike in dollars. Buy call options on the pound with a

26、 strike in euros. Buy put options on the euro with a strike in pounds. For any options market hedge, the exporter should use the hedge ratio to know how many options are needed. Spot rates are S0(/) = 0.80/, S0($/) = $2.00/, S0($/) = $2.50/; i = 15% and i = 5%. In the next year, suppose that there a

27、re two possibilities:S1(/) = 1.00/ orS1(/) = 0.75/8-208-20Options Market Cross-Currency HedgeAt first it seems logical that a British exporter with a 100,000 receivable should buy 10 put options on 10,000but that doesnt work well.10 p0 = 2,077.92 (strike price of .80/)The hedge ratio of this option

28、is 1/5 10,0007,500 10,000 = 8,000p1 = 0upp1 = 500down0 50010,000 7,5005002,500= 1/5 =H =S1 S1downupp1 p 1up downWith a hedge ratio of 0.20 our exporter would actually be better hedged with a long position in 50 PHLX puts.S1(/) = 1.00/ S1(/) = 0.75/p0 = 207.79 8-21Option Dealer80,000PutBuyingExporter

29、100,000Option DealerT = 1 Spot MarketSell 100,000100,000100,000PutBuying ExporterS1(/) = 1.00/.S1(/) = 0.75/K0(/) = 0.80/Out-of-the-Money:S1(/) = 1.00/K0(/) = 0.80/10 Puts on 10,000 (Strike 8,000) is Not a Hedge 10p0 = 2,077.92 customer100,000 Goods Notice that our exporter doesnt have a hedge when

30、he buys 10 put options. The future value of the receivable net of the cost of 10 options is either 97,600 = 100,000 2,077.92 1.155or 77,600 = 80,000 2,077.92 1.155 100,000 Goods 8-22Option Dealer400,000PutBuyingExporter500,000Option DealerT = 1 Spot MarketSell 100,000100,000100,000PutBuying Exporter

31、S1(/) = 1.00/.In-the-Money PutsS1(/) = 0.75/K0(/) = 0.80/Out-of-the-Money:S1(/) = 1.00/K0(/) = 0.80/Long 50 Puts = Perfect Hedgecustomer100,000 Goods The future value of the receivable net of the cost of 50 puts is 88,000 = 100,000 10,389.61 1.155 or 88,000 = 400,000 10,389.61 1.155 300,000100,000 G

32、oods T = 1 Spot MarketBuy 400,000S1(/) = 0.75/.400,000300,00050 p0 = 10,389.61 8-238-23Options Hedges and Money Market Hedges and Forward Market Hedges The next two slides show that the hedge of buying 50 puts has the exact same payoffs as a forward market hedge and a money market hedge. Recall the

33、story: A British exporter is owed 100,000 in one period. S0(/) = 0.80/, S0($/) = $2.00/, S0($/) = $2.50/ i = 15% and i = 5% In the next year, there are two possibilities:S1(/) = 1.00/ orS1(/) = 0.75/8-24Money Market Cross-Currency HedgeExporter Customer100,000Spot Foreign Exchange MarketGoods$190,47

34、6.1976,190.48Spot Foreign Exchange Market95,238.10$190,476.1995,238.10U.K Bank76,190.4888,000Italia Bank100,000 T= 1 cash flowsS0(/) = 0.80/, i = 15% i = 5% Perfect hedge whether S1(/) = 1.00/ or S1(/) = 0.75/.Borrow PV of 100,000 at i = 5% 8-258-25Forward Market Cross-Currency HedgeA U.K.-based exp

35、orter sold a 100,000 order to an Italian retailer. Payment is due in 1 year and the exporter used a forward hedge.Exporter Customer100,000 100,000 $209,523.81Euro Forward Contract CounterpartyPoundForward Contract CounterpartyGoods $209,523.8188,000Perfect hedge whether S1(/) = 1.00/ or S1(/) = 0.75

36、/.S0(/) = 0.80/, S0($/) = $2.00/, S0($/) = $2.50/i = 15% i = 5% i$ = 10% 8-268-26Call-Buying Importer Consider a British importer who owes 100,000 in one year.The importer can use a money market or forward market hedge to redenominate this into a 88,000 liability.He could also use OTC call options o

37、n the euro with a pound strike.10,0007,500 8,000c1 = 2,000 upc1 = 0down c0 = 900.43 H =S1 S1downup2,000 010,000 7,5002,0002,50045=c1 c1up downWith a hedge ratio of .80 our importer can hedge with a long position in 1 OTC call on 125,000.8-27Option Dealer100,000CallBuyingImporter125,000Option DealerT

38、 = 1 Spot MarketBuy 100,00075,000100,000Call Buying ImporterS1(/) = 0.75/.In-the-Money Calls:S1(/) = 1.00/K0(/) = 0.80/Out-of-the-Money:S1(/) = 0.75/K0(/) = 0.80/1 Call on 125,000 = Perfect Import HedgeSupplier100,000 Goods The future value of the receivable net of the cost of the call is 88,000 = 7

39、5,000 + 13,000 or 88,000 = 100,000 + 13,000 25,000100,000 Goods T = 1 Spot MarketSell 25,000S1(/) = 1.00/.25,00025,0008-288-28Cross-Hedging Minor Currency Exposure The major world currencies are the U.S. dollar, Canadian dollar, British pound, euro, Swiss franc, Mexican peso, and Japanese yen. Every

40、thing else is a minor currency (for example, the Swedish krona). It is difficult, expensive, and sometimes even impossible to use financial contracts to hedge exposure to minor currencies.8-298-29Cross-Hedging Minor Currency Exposure Cross-hedging involves hedging a position in one asset by taking a

41、 position in another asset. The effectiveness of cross-hedging depends upon how well the assets are correlated. An example would be a U.S. importer with liabilities in Swedish krona hedging with long or short forward contracts on the euro. If the krona is expensive when the euro is expensive, or eve

42、n if the krona is cheap when the euro is expensive, it can be a good hedge. But they need to co-vary in a predictable way.8-308-30Hedging Recurrent Exposure with Swaps Recall that swap contracts can be viewed as a portfolio of forward contracts. Firms that have recurrent exposure can usually hedge t

43、heir exchange risk at a lower cost with swaps than with a program of hedging each exposure as it comes along. It is also the case that swaps are available in longer-terms than futures and forwards.8-318-31Exposure Netting A multinational firm should not consider deals in isolation, but should focus

44、on hedging the firm as a portfolio of currency positions. Once the residual exposure is determined, we hedge that. Multilateral netting is an efficient and cost-effective mechanism for settling interaffiliate foreign exchange transactions and thus determining the firms residual exposure. In the foll

45、owing slides, a firm faces the following exchange rates:1.00 = $2.001.00 = $1.50SFr 1.00 = $0.908-328-32150150150150$150$150SFr150SFr150150$150SFr1501508-338-33150150150150$150$150150$150Exposure Netting$225$225 =$135$135SFr150SFr150150=$135SFr150$225=$300=$300$300$225$225$300$300$150$150$135$135$30

46、0$150$135$2258-348-34$225$225$300$300$150$150$135$135$300$150$135$225$15$75$75$165$90$150$75$165$90$150$75$158-348-358-35Exposure Netting: How to Double Check Your Answer Its always good practice to check your work. Its better for you to find your mistakes than for your professor to (or your boss!).

47、 You can check your work in exposure netting by adding up each subsidiarys debits and credits. When youre done, check that you havent destroyed or “created” any money. A new example follows for practice checking answers.8-368-36$125$125$155$155$100$100$80$80$155$100$80$125$240 $100+$125+$155 $140$46

48、5 $80+$100+$125 $160$375 $100+$80+$155 $40$300 $125+$80+$155$60$125$125$155$155$100$100$80$80$155$100$80$1258-378-37$25$30$75$20$55$45+$75$20+$45 $140 $30$75$55 $160$25+$30$45 $40 $25+$55$20$60$25$30$75$20$55$458-388-38$100$40+$40$100 $140$60$100 $160 $40$60$60$100$40$608-388-398-39$140 $140$20$140

49、$160 $40$60$20$40Alternative Solution8-398-408-40Netting with Central DepositorySome firms use a central depository as a cash pool to facilitate funds mobilization and reduce the chance of misallocated funds.Central depository$60$160$140$408-418-41Other Hedging Strategies Hedging through invoice cur

50、rency. The firm can shift, share, or diversify: Shift exchange rate risk by invoicing foreign sales in home currency Share exchange rate risk by pro-rating the currency of the invoice between foreign and home currencies Diversify exchange rate risk by using a market basket index Hedging via lead and

51、 lag. If a currency is appreciating, pay those bills denominated in that currency early; let customers in that country pay late as long as they are paying in that currency. If a currency is depreciating, give incentives to customers who owe you in that currency to pay early; pay your obligations den

52、ominated in that currency as late as your contracts will allow.8-428-42Should the Firm Hedge? Not everyone agrees that a firm should hedge. Hedging by the firm may not add to shareholder wealth if the shareholders can manage exposure themselves. Hedging may not reduce the non-diversifiable risk of t

53、he firm. Therefore, shareholders who hold a diversified portfolio are not benefitted when management hedges.8-438-43What Risk Management Products do Firms Use? Most U.S. firms meet their exchange risk management needs with forward, swap, and options contracts. The greater the degree of international involvement, the greater the firms use of foreign exchange risk management.