第4章(6课时)

1、CHAPTER 4,Forward Exchange and International Financial Investment,4-2,Exposure to Exchange Rate Risk,We are exposed to exchange rate risk if the net value of our income or net worth will change when exchange rates in the future change in ways that are not expected,4-3,Some Cases,An American tourist

2、in China, carrying U.S dollars with her; After 6 months, you will go to study in Johns Hopkins University. Should you translate your RMB into Dollar right now, or wait till then? You have invested in a stock listed on NASQ, and in 6 month you will have to sell it to get your money back to pay your t

3、uition in Shenzhen University,4-4,Long vs. Short Position,Open positions in a foreign currency: short positions and long positions Long position: net asset position in a foreign currency Short position: net liability position in a foreign currency,4-5,Long vs. Short Position,China New Airline has to

4、 pay $100mil as principle of an international loan plus accrued interest by the end of this year and it expects to receive $50mil as international lines ticket revenue at the year end. Has it a long position or a short position in USD at this moment? Is it exposed to exchange rate risk,4-6,Attitudes

5、 to Exchange Rate Risk,Hedging is taking an action to reduce your exposure to exchange rate risk. (risk avoiding) Speculating is taking an action that increases your exposure to exchange rate risk, usually to try to profit from your belief about what future exchange rates will be. (willing to take r

6、isk,4-7,Attitudes to Exchange Rate Risk,Hedgers are persons who avoid any open positions. Speculators are those who are willing to take a net position in a foreign currency,4-8,Forward Foreign Exchange,Forward foreign exchange contract is an agreement to exchange one currency for another on some dat

7、e in the future at a price set now (the forward exchange rate). It can be used by hedgers as well as speculators,4-9,A Typical Forward FOREX Contract,Apr.20, 2017: $1.18,U.S. firm,A receivable of 1mn in 180 days,Bank,sell pound in a 180-day forward contract at $1.19,Spot rate for Oct.20, 2016: $1.23

8、,1.19 mn on Apr.20, 2017,4-10,Exchange Rate,Spot exchange rate : set now and for immediate delivery of foreign exchange Forward exchange rate : set now but for future delivery of foreign exchange Future spot rate : the spot rate for a time in the future,Oct.20, 2016: $1.23,Apr.20, 2017: $1.18,On Oct

9、. 20, 2016- for Apr. 20,2017-$ 1.19 /Pound,4-11,Exchange Rates: New York Closing Snapshot,Friday, April 15, 2011,Source: ,4-12,Premium If the forward rate is higher, the forward rate is at a premium to the spot rate,Premium,Discount,4-13,Traders Quotations (1,A trader in New York would quote the fol

10、lowing rates to buy or sell Swiss Francs : $0.3969/74 9/11 21/24 32/46 53/70 It would equal the following: Maturity Buy SFr Sell SFr Spot $0.3969 $0.3974 1-month forward 0.3978 0.3985 3-month forward 0.3990 0.3998 6-month forward 0.4001 0.4020 12-month forward 0.4022 0.4044,4-14,Traders Quotations (

11、2,A trader in Zurich would give the quotation to a Swiss company wishing to buy U.S. dollars: SFr2.5164/95 70/57 151/132 288/201 436/332 It would equal the following: Maturity Buy $ Sell $ Spot SFr2.5164 SFr2.5195 1-month forward 2.5094 2.5138 3-month forward 2.5013 2.5063 6-month forward 2.4876 2.4

12、994 12-month forward 2.4728 2.4893,4-15,Traders Quotations,4-16,Basics of Forward FOREX,Customized clauses Size Maturity date（common dates are 30, 90, and 180 days forward） A margin? Depends on your credit standing,4-17,Traditional Forex vs. Derivatives,Traditional forward exchange vs. Futures Optio

13、ns and Swaps,4-18,Hedging using forward foreign exchange,Suppose you are the boss of an U.S. steel company, Your company bought some steel from Australia and will have to pay AUD10,000 3months from now. The current 90-day forward rate is $0.7500 /AUD. How to hedge the risk,4-19,Solution with Forward

14、 Contracts,Sign a forward contract to buy AUD10,000 at $0.7500 /AUD in 3 months. Wait until 3 months later. Buy AUD10,000 with $ 7500,4-20,Speculating Using Forward Foreign Exchange,Suppose you are a extremely smart, well-informed, very experienced speculator in the market, You see a coming subprime

15、 mortgage crisis to break in U.S within 6 month, and dollar will be worth only 100Yen in 6 month from its current value at 120Yen; The current 180-day forward rate is Yen119/$; You have capacity to borrow $1mn or 120mn, and the interest rates for $ and are the same. How will you gain a profit from y

16、our wise judgment,4-21,Solution with Forward Contracts,Sign a forward contract to sell $1mn and buy future Yen at Yen119/$ in 6 months. Wait and watch financial crisis to break in U.S during the next 6 months. Buy Yen119mn with your $1mn and sell in spot market at Yen100/$ and get back $1.19mn. Net

17、profit: $0.19mn,4-22,International Financial Investment,How to calculate the overall returns on financial assets denominated in foreign currencies? What are the sources of risk that apply to foreign financial investments? Can the investors hedge exposures to exchange rate risk,4-23,International Fin

18、ancial Investment,Covered international investment, or a hedged investment; Uncovered international investment, or an unhedged investment,4-24,Figure 4.1,4-25,Investing Domestically or Abroad,Invest in US: Returnus=1 + ius Invest in UK: Returnuk=(1 + iuk) f /e Which is more profitable? Returnuk Retu

19、rnus=(1 + iuk) f /e (1 + ius,4-26,Covered Interest Differential,An investor can compare the return on a covered international investment to the return on a home investment using the covered interest differential (CD). CD = (1 + if)f/e - (1 + i) Where, if: foreign interest rates, i: domestic interest

20、 rates, e: the spot exchange rate (with foreign currency as the denominator currency) , f: the forward exchange rate,4-27,Covered Interest Differential,Approximately, we have CD = F + (if i), Where , F is the forward premium (discount if negative) on the foreign currency. F= (f e) / e,4-28,Annualize

21、d F If the expected future spot rate increases, and there is no change in id and if, current spot rate will increase,4-44,Empirical Evidence,Evidence on Covered Interest Parity Basic test: Eurocurrency deposits offered by large banks to international customers; A more stringent test: comparable shor

22、t-term financial assets in separate national financial markets; Conclusion: Covered Interest Parity holds very well in recent decades (since mid-1980s),4-45,Figure 4.2 CD: the US against Germany, Japan and France (78-93,4-46,Empirical Evidence,Uncovered Interest Parity is hard to be tested using act

23、ual data. Two approaches Conclusion1: Uncovered Interest Parity is useful as a rough approximation empirically, but it appears to apply imperfectly to actual rates. Conclusion2: The forward exchange rate is only roughly useful as an indicator of expected future spot rate,4-47,Figure 4.3EUD: The US a

24、gainstGermany and Japan (1991-2005,4-48,Currency Futures Contract,Currency futures contracts are contracts specifying a standard volume of a particular currency to be exchanged on a specific settlement date,4-49,Currency Futures Contracts Traded on CME,Currency Units per Contract AUD 100,000 Brazili

25、an real 100,000 British Pound 62,500 Canadian dollar 100,000 Euro 125,000 Japanese Yen 12,500,000 Mexican peso 500,000 New Zealand dollar 100,000 Russian ruble 500,000 South African rand 500,000 Swiss Franc 125,000,4-50,Trading on CME,Trading instruments：interest rates, equities, currencies, and com

26、modities Trading methods： Open Outcry Electronic Trading Settlement date: the third Wednesday Marked-to-market,4-51,Currency Futures: Yen,Thursday, April 14, 2011 Japanese Yen (CME)-￥12,500,000; $ per 100 Yen Est vol 143,950; vol Wed 119,076; open int, 132,993, +2,909. Sources: Thomson Reuters; WSJ

27、Market Data Group,4-52,Currency Futures: Euro,Friday, April 15, 2011 Euro (CME)-125,000; $ per Est vol 254,185; vol Thu 299,409; open int, 244,115, +1,384. Sources: Thomson Reuters; WSJ Market Data Group,4-53,How Speculators Use Currency Futures,On April 4, a future contract specifying 500,000 Mexic

28、an peso is priced at $0.09 per unit with a June settlement date. If you expect peso to decline, what will you do,4-54,How Firms Use Currency Futures,Your company ordered Australian goods, and upon delivery will need AUD1,000,000. Assume the current 180-day AUD future price is $0.7500. How to hedge u

29、sing AUD futures? Purchase 6-month AUD future contracts today at $0.7500 /AUD. Wait until 6 months later. At the settlement date, buy AUD1,000,000 with $750,000 and pay the Australian exporter,4-55,Closing out a Futures Contract,Jan.10 April. 15 June. 17,Step1: Contract to buy $0.75 per AUD AUD1,000

30、,000 =$750,000 at the settlement date,Step 2: Contract to sell $0.70 per AUD AUD1,000,000 =$700,000 at the settlement date,Step 3: Settle contracts -$750,000(contract1) +$700,000(contract2) = - $50,000 loss,Settlement Date,4-56,Currency Options Market,An alternative type of contract that can be purc

31、hased or sold by speculators and hedgers. Currently available for many currencies. Some traded on exchanges, like CME, CBOE, etc. , some over the counter. A margin is needed,4-57,Currency Call Options,Grants the right to buy a specific currency at a designated price within a specific period of time.

32、 Exercise price (strike price) Expiration date (American/European style) Premiums vary over time In/at/out of the money,4-58,Currency Call Options,Owner of the option is not obligated to exercise the option The maximum potential loss to the owner (long side) of the option is the premium paid The max

33、imum profit to the seller (writer or short side) of the option is premium,4-59,Factors affecting Premiums,Level of existing spot price relative to strike price. Length of time before the expiration date. Potential variability of currency,4-60,Graph for Purchasers of a Call Option,1.46,1.48,1.50,1.52

34、,1.54,.02,.04,.02,.06,.04,.06,Net profit per unit,Exercise price=$1.50 Premium=$0.02,Future spot rate,In the money,at the money,Out of the money,Break-Even point,4-61,Graph for Sellers of a Call Option,1.46,1.48,1.50,1.52,1.54,.02,.04,.02,.06,.04,.06,Net profit per unit,Exercise price=$1.50 Premium=

35、$0.02,Future spot rate,4-62,How Firms Use Call Options,Pike Co. of Seattle has bid on a project in Canada. If the bid is accepted in 3 months, Pike will need C$500,000 to purchase goods thus Lufthansa would purchase $250 million in January 1985 for 800 million marks. The remaining 50% was left uncov

36、ered to take advantage of a possible weakening of the dollar,4-74,Outcome,During the 12 month period, the U.S. dollar did weaken against the mark. By January 1986, it was trading around 2.45. This represented a decline of 23,4-75,Outcome,The Chairman of Lufthansa, Heinz Ruhnau, was criticized for he

37、dging 50% of the exposure which resulted in 187,500,000 marks more than if the company had not covered. As a result, Ruhnau was only offered a short term renewal contract as Chairman by the Minister of Transportation,4-76,中国企业常用外汇避险方式,外汇避险方式：运用金融衍生产品、贸易融资、改变贸易结算方式、提高出口产品价格、改用非美元货币结算、增加内销比重和使用外汇理财产品等

38、 目前使用最为广泛的外汇避险工具： 远期结售汇业务（1997年试点推出） 人民币货币掉期业务（2005年8月推出,4-77,人民币远期结汇合约,2007年7月，某进出口公司预计在3个月之后将有一笔300万美元收入。 该企业选择在7月6日同银行叙做一笔美元兑人民币3个月的远期结汇交易，将汇率锁定为RMB7.5145/USD，交割日为2007年10月9日。 随后人民币继续升值1.5至RMB7.4860/USD，企业没有受到影响,4-78,人民币掉期合约,某出口企业收到国外进口商支付的出口货款500万美元，该企业须将货款结汇成人民币用于国内支出，但同时该企业需进口原材料并将于3个月后支付500万美元

39、的货款。 该企业可与银行办理一笔即期对3个月远期的人民币与外币掉期业务：即期卖出500万美元，取得相应人民币，3个月远期以人民币买入500万美元,4-79,Question 1,6 month interest rate is 7% in U.S. 6 month interest rate is 5% in Switzerland. According to the covered interest parity, 6-mons forward exchange rate for SFr is at premium or discount? If the spot exchange rate of SFr is $0.50, what is the 6-mos forward exchange rate,4-80,Question 2,the spot exchange rate of Singapore dollar is $0.70. 1year interest