P3 CH12 Currency risk management - Practice Tests Academy · 4/17/2018 · CH12 – Currency Risk...

P3 - Risk Management CH12 – Currency Risk

Management

Chapter 12 Currency risk management Chapter learning objectives: Lead Component Indicative syllabus content

D2: Evaluate alternative risk management tools.

(a) Advise on the effects of economic factors that affect future cash flows from international operations.

• Exchange rate theory and the impact of differential inflation rates on forecast exchange rates.

• Theory and forecasting of exchange rates (e.g. interest rate parity, purchasing power parity and the Fisher effect).

• Value at risk.

D2: Evaluate alternative risk management tools.

(b) Evaluate appropriate methods for the identification and management of financial risks associated with international operations.

• Minimising political risk. • Responses to economic transaction and

translation risks. • Operation and features of the more common

instruments for managing interest rate risk: swaps, forward rate agreements, futures and options.

• Techniques for combining options in order to achieve a specific risk profile: caps, collars and floors.

• Internal hedging techniques.


Management

1. Exchange rates • Expressed in terms of the quantity of one currency that can be exchanged for one unit

of the other currency.

• Can be thought of as the price of that currency, e.g.:

1 USD = 0.6667 GBP

Note:

• To convert from USD to GBP, multiply by 0.6667

• To convert from GBP to USD, divide by 0.6667

• This can also be stated as $1 = £0.6667 or $1:£0.6667

• Exchange rates are usually quoted to four decimal places.

Inverting exchange rates USD can be expressed in terms of GBP instead of vice versa:

1 USD = 0.6667 GBP may be expressed in terms of USD to GBP by dividing 1 by the rate:

1 ÷ 0.6667 = 1.5000

Therefore, the alternative expression of the rate is:

1 GBP = 1.5000 USD

Spot Rate:

• The rate given for a transaction with immediate delivery (now).

• In practice, it is settled within two business days.

Spread:

• Banks want to make a profit out of a deal.

• They do so by selling low and buying high.

• This means that they earn a margin (spread) on the deal as well as commission and fees.

• The rate at which the bank will sell the variable currency, USD, in exchange for the base currency, GBP, is 1.4500 USD, i.e. the rate at which it will buy GBP.


Management

• The rate at which the bank will buy USD in exchange for GBP is $1.5500 USD, i.e. the rate at which it will sell GBP.

Direct and indirect currency quotes The direct quote is the amount of domestic currency that is equal to one foreign currency unit.

The indirect quote is the amount of foreign currency that is equal to one domestic currency unit.

Cross Rates This is where we are not provided with the exchange rate for a particular currency but are instead given its relationship with a different currency.

For example, if we have a rate in GBP1/USD and a rate is given in GBP1/EUR, we may derive a cross rate for EUR1/USD by dividing the GBP1/USD rate by the GBP1/EUR rate.

2. Exchange rate theory

Forecasting exchange rates Note:

• In the short term, rates may fluctuate due to market sentiment and speculation, which are not easily explained theoretically. Over the longer term, more fundamental factors come into play.

• Forecasting exchange rates with some degree of accuracy may reduce the transaction risk faced by the company and may allow hedging costs to be minimised.


Management

Why exchange rates fluctuate:

• Speculation

• Balance of payments

• Government policies

• Capital movements between economies

Purchasing Power Parity Theory (PPPT) • The rate of exchange will be directly determined on the basis of the relative rates of

inflation suffered by each currency.

• The country with the higher inflation will suffer a fall (depreciation) in their currency.

The basis of PPPT is the “law of one price”:

• Identical goods must cost the same regardless of the currency in which they are sold. If this is not the case, arbitrage will take place until a single price is charged.

• Rule: the country with higher inflation will suffer a fall (depreciation) in their currency.

The PPPT formula is:

Test Your Understanding 1: PPPT The USD and GBP are currently trading at GBP1/USD1.41

Inflation in the USA is expected to grow at 3,2% pa, but 4.2% pa in the UK. What is the future spot rate in one year’s time?

Please provide your answer up to 4 decimal places.


Management

Limitations of PPPT:

• Suppliers and manufacturers charge what the market bears, which differs from one country to another.

• The cost of physically moving some products from one place to another means that there will always be a premium in some markets compared to others.

• Manufacturers may be able to successfully differentiate products into each market to limit the amount of arbitrage that occurs.

Is PPPT a good predictor of a future spot rate?

• Future inflation rates are only estimates and cannot be relied upon to be accurate.

• The market is dominated by speculation and currency investment rather than trade in physical goods.

• Government intervention in both direct and indirect ways can nullify the impact of inflation.

Interest rate parity theory (IRPT) • This is based on similar principles to PPPT.

• The IRPT claims that the difference between the spot and forward exchange rate equals the differential between interest rates available in the two currencies.

Forward rate – an exchange rate agreed now for buying or selling an amount of currency on an agreed future date.

• If a forward rate is anticipated to be cheap, the forward rate will be quoted at a discount.

• If a forward rate is anticipated to be expensive, the forward rate will be quoted at a premium.

Spot rates are given in terms of 1 unit of home currency/foreign currency, e.g. GBP1/USD

Test Your Understanding 2: IRPT Imagine that you are able to borrow the money in Swiss Franks: CHF at a rate of 2.2% pa, while in Polish Zloty: PLN you can do the same for 6.5% pa. The currency rate of exchange is PLN1/0.2764 CHF.

What is the l ikely rate of exchange in a year’s t ime? Please provide your answer up to 4 decimal places.


Management

Is IRPT applicable for determine forward rates?

• Controls on the capital market.

• Control on currency trading.

• Government intervention in the market.

International Fisher effect The nominal interest rate consists of 2 elements: the return by the lender and a premium to cover expected inflation. If the real rate of return to lenders is the same in all countries because of free movement of capital and the operation of the law of one price, then any difference in nominal rate will reflect differences in inflation rates between countries. This is known as the International Fisher Effect.

Arbitrage • Arbitrage is the simultaneous purchase and sale of a security in different markets with

the aim of making a risk-free profit through the exploitation of any price difference between the two markets.

• Used by speculators as a hedging tool.

• Arbitrage differences are short term.

• When other traders see the differences in the price of the commodity, they will exploit them, and the prices will converge. The difference will disappear as equilibrium is reached.

3. Financial risk management The stages of the financial risk management process are essentially the same as in any risk management process:

1. Identify the risk exposure

2. Quantify exposure

3. Decide whether or not to hedge


Management

4. Implement and monitor the hedging program

To hedge or not to hedge?

Benefits of hedging: Arguments against hedging:

Provides certainty of cash flows Hedging by the business may harm shareholders’ interests

Assists in the budgeting process Significant transaction costs associated with hedging

Reduced risk Lack of expertise in using the derivative instruments

Management will be more inclined to undertake investment projects

Complex accounting and tax issues with the use of derivatives

Hedging is an attractive policy to risk-averse managers

Derivative • A financial instrument whose value depends upon the price of some other financial

asset or an underlying factor.

• The directors of an organisation decide how to use derivatives to meet their goals and align with their risk appetite.

Uses of derivatives:

• Hedging – used as a risk management tool to reduce or eliminate financial risk.

• Speculation – used to make a profit through predicting market movements.

• Arbitrage – used to exploit price differences between markets.

• Short term only.

• If the commodity appears to be cheap, demand will increase, which will push up the price.

• The price tends to be differential, where a gain that could be made in the past has now closed.


Management

Treasury Function • This exists in every business but is most visible in large organisations.

• In small businesses, it may be absorbed into the company’s accounting or secretarial function.

Main treasury functions: • Managing relationships with banks – to arrange hedging etc.

• Working capital and liquidity management – to ensure that a sufficient amount of cash is available on a daily basis.

• Long-term funding arrangements – providing cash for longer-term investments.

• Currency management – dealing with currencies, which will entail both internal and external hedging techniques.

Profit centre or cost centre:

Should treasury activities be accounted for simply as a cost centre or as a profit centre in its own right?

Advantages of operating as a profit centre, as opposed to a cost centre: Disadvantages:

The market rate is charged to business units throughout the entity, making operating costs realistic

The profit motive leads to a temptation to speculate and take excessive risks

The treasurer is motivated to provide services as efficiently and economically as possible

Management time is wasted on discussions about internal charges for the treasury activities

Additional administrative costs will be incurred

Centralised or Decentralised:

Many large entities have a centralised treasury function. This has its own merits and limitations:

Risks associated with centralised treasury: Risks associated with decentralised treasury:

A lack of motivation towards managing cash in the subsidiaries.

One company may pay large overdraft interest costs, while another has cash balances in hand, earning low interest rates.

The risk of committing errors at the treasury at head office that may jeopardise the whole financial health of the group.

The risk of not generating the profits for the group that would be earned if the group funds were actively managed by treasury operations seeking profit rather than individual executives just seeking to minimise costs.


Management

4. Currency risk management

5. Internal hedging techniques Internal hedging - hedging without the use of money markets.

Invoicing in home currency • Invoicing in the home currency and accepting invoices from suppliers in the home

currency partly remove the currency risk.

• The currency risk is transferred to suppliers and customers.

• This technique does not remove economic risk.

• The value of the business will still fall if overseas competitors are performing better than their overseas trade in foreign currencies.

Limitations of invoicing in home currency:

• Customers and suppliers may not be prepared to accept all the currency risk, and therefore they will not trade with the business.

• The other parties may not be prepared to accept the same prices and will require discounts on sales or premiums on purchases.


Management

• There are other ways of hedging risks to make the risk of transacting in foreign currency acceptable.

Leading and lagging:

• A method of trying to make gains on foreign currency payments.

• Leading is making a payment before it is due.

• Lagging is delaying a payment for as long as possible.

• Effective if the company has a strong view about future movements in the exchange rate.

Limitations of leading and lagging:

• Early payment will cost a company the interest foregone on the funds that have been disbursed already.

• The payee will not be happy if a payment becomes overdue, particularly if the currency is expected to fall.

• Requires the company to take a speculative view on exchange rates. There is a risk that the company will be wrong.

Offsetting Matching:

• Involves matching assets and liabilities in the same currency.

• Financing a foreign investment with a foreign loan would reduce exposure to the exchange rate.

Netting:

• Involves the use of foreign currency bank accounts.

• If the company knows it will be both receiving and paying in foreign currency, it can reduce exchange risk by using foreign receipts to cover foreign payments.

• Netting works best if the dates of the receipts and payments are as near together as possible.

• Netting can be done across the group by a treasury function.


Management

Pooling:

• A system of managing cash.

• When a business has several bank accounts in the same currency, it may be able to arrange a system with bank(s) whereby the balances on each bank account in the same currency are swept up into a central account at the end of each day, leaving a zero balance on every account except the central account.

• Does not hedge against FX risk but can be an efficient system for cash management.

• Avoids overdraft costs on individual bank accounts.

• Enables the treasury department to make more efficient use of any cash surplus.

• Pooling can also be implemented by subsidiary companies.

Countertrade:

• This involves parties exchanging goods and services of equivalent values.

• This is old-fashioned bartering and avoids the use of any type of currency exchange.

• Tax authorities discourage this method.

• If cash does not exchange hands, it can be difficult to establish the value of the transaction and any related sales tax payable.

• Countertrade is not very popular; it leads to disputes with the tax authorities and takes up management time.

6. External hedging External hedging is hedging with the use of the money markets:

• Forward exchange contract

• Money market hedge

• Futures

• Options

• Swaps


Management

Netting centres • A treasury management technique used by large companies to manage their

intercompany payment processes.

• Involves the use of many currencies.

• Yields significant savings from reduced foreign exchange trading.

• Collates batches of cash flows between a defined set of companies and offsets them against each other so that just a single cash flow to or from each company takes place to settle the net result of all cash flows.

• The netting process takes place on a cyclical basis, typically monthly.

• Managed by a central entity called the netting centre.

• The objective of the netting centre is to reduce the overall foreign exchange volume traded and thereby cut the amount of foreign exchange spread paid by the company to manage all of the currency conversions.

7. Currency Forward Contracts • An agreement to buy or sell a specific amount of foreign currency at a given future

date using an agreed forward rate.

• The most popular method of hedging exchange risk.

• The entity is able to fix in advance an exchange rate at which a transaction will be made.

• The risk is taken by the bank, which is in a better position to manage its exposure.

• A proportion of the exposure will normally be avoided by writing forward contracts for opposite trades on the same day.

Features and operations • Forward contracts are a commitment.

• They have to be honoured even if the rate in the contract is worse than the rate in the market.

• They are quoted at a premium or discount to the current spot rate.

Note: Discount means that the currency being quoted (e.g. US dollar) is expected to fall in value in relation to the other currency (e.g. sterling).

A discount is referred to as “dis”, and a premium is referred to as “prem”.

These can be quoted in cents, i.e. USD 0.01, and shown as “c” in the quote.

Key for exam questions:

Use the following rule for obtaining a forward rate from the spot rate:


Management

★ Add a forward discount to the spot rate

★ Subtract a forward premium from the spot rate

Note: this rule is only applicable where the exchange rate is quoted as the AMOUNT OF FOREIGN CURRENCY TO A HOME CURRENCY UNIT.

Please note that discounts and premiums are derived from the interest rate parity formula in theory.

Test Your Understanding 3: Currency forward contract Marino Inc, which is a company based in Ireland, sold goods to the value of USD 3.3 million. Receipt is due within 90 days.

The current spot rate is EUR1 = USD 1.2430-1.2190.

There is a three-month discount forward of 2.5-1.5 cents.

What is the amount of EUR that Marino Inc will receive under the forward contract? Please provide your answer up to the nearest full number.

Advantages Disadvantages

Simple A potential credit risk arises

Low transaction costs The company is contractually bound to sell a currency that it may not have received from its customer.

Purchased from high street banks Lack of upside potential

Fix the exchange rate

Tailor-made, flexible regarding amount and delivery period

8. Money Market Hedges • A money market hedge involves exchanging currencies immediately and using the

interest rates of both countries to hedge against movements in the exchange rate.


Management

• The money market uses the principle of interest rate parity.

Features and operations • The basic idea of a money market hedge is to create assets and liabilities that mirror

future assets and liabilities.

• Currencies are loaned or deposited on the date of the transaction.

• The loans or deposits accrue and earn interest.

• At the cash point, the loan is paid, and deposits are taken out.

• Rule: The money required for the transaction is exchanged today at the spot rate and is then deposited/borrowed on the money market to accrue to the amount required for the transaction in the future.

• Note: Interest rates are used for depositing/borrowing. The rates are usually quoted per annum. If you require a six-monthly rate, simply divide by 2.

Characteristics:

• The basic idea is to avoid future exchange rate uncertainty by making the exchange at today’s spot rate instead.

• This is achieved by depositing/borrowing the future currency until the actual commercial transaction cash flow occurs.

Future Foreign Currency Cash Flow:

Payment

NOW: * borrow in domestic currency * buy the present value of the future payment today at spot * place a deposit

FUTURE: * use deposit to pay supplier

Receipt NOW:

* borrow the present value of the future receipt * sell today at spot * place domestic currency on deposit.

FUTURE: * settle liability with receipt from

customer


Management

Test Your Understanding 4: Money Market Hedge A customer based in UK owes Billag USD20,000 to be paid in 6 months’ time.

The USD/GBP forward rate is 1.3010 – 1.3105 and the spot rate is 1.3310 – 1.3400.

Interest rates in US to borrow are 10% and to lend 9%. In the UK interest to borrow are 9% and to lend 8%.

If Billag chooses to use a money market hedge, how much will they receive in USDs in 6 months’ t ime? Provide the value up to 2 decimal places.


Ensures that there is no currency risk They are complex

Fairly low transaction costs It may be difficult to get an overseas loan in the case of foreign currency receipt

Offers flexibility

9. Currency Futures • This form of hedging is very similar to the use of a forward contract.

• The critical difference is that whereas using a forward contract requires the preparation of a special financial instrument “tailor-made” for the transaction, currency futures are standardised contracts for a fixed amount of money for a limited range of future dates.

Features and operations • Futures are derivative contracts and can be traded on futures exchanges.

• The contract that guarantees the price is separated from the transaction itself, allowing contracts to be traded easily.

Process Step 1: Set up

Set up the hedge by addressing three key questions:


Management

1. Do we initially buy or sell?

The simplest approach is to identify the currency of the future contract and then do the same to the futures that you intend to do to that currency.

2. Which expiry date should be chosen?

Settlement takes place in a three-month cycle (March, June, September, December).

It is normal to choose the first contract to expiry after the required conversion date.

3. How many contracts?

Step 2: Contact exchange:

Pay the initial margin, and then wait until the transaction settlement date.

Margin: the futures exchange requires all buyers and sellers of futures to pay a deposit to the exchange when they buy or sell.

The deposit is called the initial margin. The margin is returned when the position is closed out.

Step 3: Closing out:

At the end of the contract’s term, the position is closed out. This means that on expiry of the contract the trading position is automatically reversed. Any profit or loss is computed and cleared, and the underlying commodity is returned by the trader.

The value of the transaction is calculated using the spot rate on the transaction date.

Test Your Understanding 5: Futures calculation You are a treasurer in a German based company. You have a supplier in the USA, that your company owes USD 15,000,000 on 28th of February. Today is 7th of January. You have decided to use March euro futures contract to hedge with the following details:

Contract size: EUR 200,000

Prices given is USD per EUR.

Tick size USD 0.0002 or USD 25 per contract

You open a position today (7th of January) and you close it on 28th of February. Spot and relevant futures prices are as follows:

Date Spot price Futures price

7th of January 1.2410 1.2460

28th of February 1.2310 1.2360

Calculate the financial position using the hedge described.


Management


Offer effective fixing of exchange rate A foreign futures market must be used for GBP futures

No transaction costs Require upfront margin payments.

Are tradeable Are not usually for the exact tailored amounts that are required

10. Currency options A currency option is a right, but not an obligation, to buy or sell currency at an exercise price on a future date.

• If there is a favourable movement in the exchange rate, the company will allow the option to lapse to take advantage of the favourable movement.

• The right will only be exercised to protect against an adverse moment, i.e. the worst case scenario.

Features and operations • Options look great, but they have a cost.

• Options limit the downside risk but allow the holder to benefit from upside risk.

• The writer of the option will charge a non-refundable premium for writing the option.

• It is possible for the holder of the option to calculate the gains or losses on using the option:

• The gain if the option is exercised (the difference between the exercise price and the market price of the underlying item).

• Less: the premium paid to purchase the option.

There are two types of options:

Call Option – gives the right to the holder to BUY the underlying currency.

Put Option – gives the right to the holder to SELL the underlying currency.

Options hedging calculations Step 1:

Set up the hedge by asking four key questions:

• Do we need call or put options?

• Which expiry date should be chosen?


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• What is the strike price?

• How many contracts?

Step 2:

• Contact the exchange

• Pay the upfront premium

• Wait until the transaction/settlement date

Step 3:

On the transaction date:

• Compare the option price with the prevailing spot rate to determine whether the option should be exercised or allowed to lapse

Step 4:

Calculate the net cash flows.

“Be aware that if the number of contracts needed rounding, there will be some exchange at the prevailing spot rate even if the option is exercised.”

Test Your Understanding 6: Currency options Morelli Sarl is a French company that is due to receive USD 5 million in 6 months.

The spot rate is USD 1.2200/EUR but the company is worried that the USD will weaken. They have been offered a six month put option on USD at USD 1.2500/EUR, costing USD 0.015 per EUR.

If Morelli Sarl chooses to buy and then exercise the option, what is its net receipt in EUR?


Management


Offer the perfect hedge. Traded sterling options are only available in foreign markets.

Many choices of strike price, date and premium.

There are high upfront premium costs (non-refundable).

Can be allowed to lapse if the future transaction does not arise.

The Black Scholes Model The basic principle of the Black Scholes Model is that the market value or price of a call option consists of two key elements:

1. Intrinsic value:

• The difference between the current price of the underlying asset and its option strike price.

• For the market value of a call option to rise, one or both of the following must occur:

• Current price of the underlying asset must increase.

• Strike price must fall.

2. Time value:

• This reflects the uncertainty surrounding the intrinsic value and is impacted by three variables:

• Standard deviation in the daily value of the underlying asset.

• Time period to expiry of the option.

• Risk-free interest rates.

Limitations of Black Scholes Model:

• Assumes that the risk-free interest rate is known and is constant throughout the option’s life.

• The standard deviation of the returns from the underlying security must be accurately estimated.

• Assumes that there are no transaction costs or tax effects involved in buying or selling the options or the underlying items.


Management

12. Forex Swaps • In a forex swap, the parties agree to swap equivalent amounts of currency for the

period and then reswap them at the end of the period at an agreed swap rate.

• The swap rate and the amount of currency are agreed between the parties in advance.

• This is called a fixed rate swap.

Objectives of swap:

• To hedge against forex risk, possibly for a longer period than is possible on the forward market.

• To access capital markets in which it may be impossible to borrow indirectly.

Currency Swap:

Allows the two counter-parties to swap interest rates commitments on borrowings in different currencies.

Has two elements:

• An exchange principle in different currencies.

• An exchange of interest rates.

The swap of interest rates can be fixed for fixed or fixed for variable.

Test Your Understanding 7: Currency swap PTA Ltd is a UK company looking to expand into the USA. It wants to raise USD 6 million at a variable interest rate. It has been quoted the following:

USD LIBOR + 80 points

GBP 1.9%

Khan Inc is an American company looking into refinance an existing loan of GBP 4.8 million at a fixed rate. It can borrow at the following rates:

• USD LIBOR + 60 points

• GBP 3.2%

The current spot rate is USD 1 = GBP 0.80

Calculate the saving made by both companies if they enter into the currency swap.


Management

Solution to Test Your Understanding 1 on PPPT

1.41 ×1.0321.042 = 𝑈𝑆𝐷 1.3965

Solution to Test Your Understanding 2 on IRPT

0.2764×1.0221.065 = 0.2652 𝐶𝐻𝐹

Solution to Test Your Understanding 3 on currency forward contract Marino Inc expects to receive a receipt in USD and therefore wishes to buy EUR from the bank. The bank will sell EUR high and therefore the rate will be 1.2430 (current spot). The discount of 2.5 cents must be added to the rate, therefore giving a rate of 1.2680.

The EUR receipt is therefore USD 3.3m/1.2680 = 2,602,524 EUR.

Solution to Test Your Understanding 4 on currency forward contract The company should borrow from the bank just enough to end up owing exactly USD 20,000.

Amount borrowed: USD 20,000/1.3105 = GBP 15,261.35

which should be converted into USD at spot

GBP 15,261.35 / 1,34 = USD 11,389.07

They should then invest this for 6 months in the US:

USD 11,389.07 * 1.045 (half of 9% as it is half a year) = USD 11,901.58


Management

Solution to Test Your Understanding 5 on futures calculation

Step 1 Buy or sell?

We need to sell EUR to buy USD. We need to SELL EUR futures now.

Which expiry date?

The first to expire after the transaction date – so March.

How many contract?

Cover 15m/1.2460 = EUR 12.038.523 m

So using EUR 200,000 contracts 60.19 which we round up to 60 contracts.

Step 2 Contact the exchange – state the hedge

Sell 60 contract March futures at a futures price EUR1 / USD 1.2460

Step 3 Calculate profit/loss in futures market by closing out the position

Initially: sell at 1.2460

Close out: Buy at 1.2360

Difference is USD 0.01 per EUR 1 profit

60 x EUR200,000 covered, so total profit is

0.01 x 60 x 200,000 = USD120,000

Transaction at spot rate on 28th February

Need to pay USD 15m less 0.12 = USD 14,880,000

which is needed to be paid at spot rate of EUR1/USD1.2310

Cost in EUR therefore is EUR 12,087,734

Solution to Test Your Understanding 6 on currency options The EUR received upon exercise will be 5,000,000 / 1.2500 = EUR 4,000,000

The cost of the option will be 0.015 x 4,000,000 = USD 60,000

At spot this cost in EUR is USD 60,000 / 1.22 = 49,180.33

Therefore the net receipt will be 4,000,000 – 49,180.33 = EUR 3,950,819.67


Management

Solution to Test Your Understanding 7 on currency swaps

When PTA Ltd Khan Inc

Now

Borrow from banks

Exchange principals

GBP 4.8m at 1.9%

Pay GBP 4.8m to Khan and receive USD 6m

USD 6m at LIBOR + 0.6%

Pay USD 6m to PTA and receive GBP 4.8m

End of the year

Pay interest to banks

Exchange interest based on swap terms

Swap back principals

Pay GBP 91,200 interest

Pay Khan USD 6 x (L+0.6%) and receive GBP 91,200

Pay USD 6m to Khan and receive GBP 4.8m

Pay USD 6m x (L+0.6%) interest

Receive USD 20m x (L+0.6%) and pay GBP 91,200 to PTA

Pay 4.8m to PTA and receive USD 6m

Net result

Interest costs:

Without swap USD 6m x (L+0.8%) GBP 4.8m x 3.2% = GBP 153,600

With swap USD 6m x (L+0.6%) GBP 4.8m x 1.9% = GBP 91,200

Saving USD 6m x 0.2% = USD 120,000 GBP 62,400


Management

13. Chapter summary

P3 CH12 Currency risk management - Practice Tests Academy · 4/17/2018 · CH12 – Currency Risk...

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