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currency risks (in Business Administration and Commerce)
importance of currency risk
currency fluctuations have a major impact on export-oriented companies. € five cents more in the dollar can, for example, the chemical company Bayer to increase the profit before tax by 40 to 50 million EURO. Pharmaceutical manufacturer Schering earned a dollar increase of 0.5 € cents net 500 000 EURO more a . stuck in accordance with operations to be carried out in foreign currency changes, high risks, you can hedge in several ways.
terms: foreign exchange and foreign exchange spot and forward exchange transactions
The main instrument used to hedge the currency risk is the foreign exchange business. In currency is understood to book foreign money. varieties other hand, are foreign currency, ie banknotes and coins.
All foreign exchange transactions that must be met first from the third day after hot, forward foreign exchange transactions. In general, such transactions are met, for example 30 days or 90 days after completion. Currency futures are possible set of business and up to 5 years. In contrast, there are foreign exchange spot transactions. Here is the settlement date of the second day after the trade.
instruments, risk mitigation
There are various tools for risk mitigation in the context of forward exchange transactions. We consider the following: the outright transactions, foreign exchange and foreign exchange senoptionsgeschäfte futures.
term: conditional and unconditional contracts
Outright transactions and futures are among the absolute futures. You have on the fixed date are met. Option transactions, however, are necessarily be-forwards. You may be exercised, but do not have.
Outright transactions
outright transactions are the classic form of currency hedging. The importer buys eur currency today, which he must later pay to the exporter. Here, the exchange rate with the bank is set today, the payments only at maturity.
can Hence, the Exporter secure. He already sold foreign exchange at a price, he now sets. It provides the foreign exchange only when it has received payment from the importer.
currency options
One option is a right. A person carrying a foreign exchange options trading, has secured is the right (but not the obligation!) To buy or sell foreign exchange. There Kaufop-tion and put options. They confer the right to a certain amount to buy foreign currency at the agreed price within a specified time period available (call option) or to sell (put option).
buying a call option by an importer
A call option is called "Call". The purchase of a call option is an importer in question. Let's say, a German importer has bought for the price of one million U.S. dollars commodities. It is delivered in three months and then has to be paid well.
The dollar rate today amounts to EUR 0.90. He may go down remain the same or fall. Falling dollar rate for the importer, of course, generally favorable, since he has to pay when due to the dollar less EURO. If he knew certainly that the dollar falls, it is not needed to secure. He knows it but now not even. There
purchase option and rising dollar
The option to buy him the opportunity to hedge against rising dollar prices and still profit from a declining dollar. ; the importer a three-month call option bought at the strike price of EURO 0.92 per dollar. That means he has the right to the dollar to EURO 0.92 to buy. pay for this call option, the importer an option price, called the premium. The aid amounted to EURO 0.02 per dollar. If the dollar rises above EURO 0.92, he will exercise his option.
option to purchase and outright business
an importer can hedge against the rising dollar also by a simple business outright. He could have agreed, for example, that the bank him the dollar in three months for EUR 0.92 leaves. If the dollar now actually about 0.92 EURO is rising, it pays the business outright only EURO 0.92 per dollar a , when the purchase option but EURO 0.94 (strike price + option premium). They are at least $ 1 million EURO 20,000 more. The advantage of the call option is that it can benefit from falling dollar prices. Because if the dollar falls, it must be paid to the business outright in all cases EURO 0.92 per dollar.
purchase option and a falling dollar
If, however, the dollar (or will he be in EURO 0,90), then the importer to forfeit his option. If the dollar is for example in three months at EURO 0.85, the importer, the dollar will not buy after its purchase option right for Euro 0.92, but for most Devisenmakt EURO 0,85. He then paid for this kind of hedging Total 870 000 EURO (850,000 to 1 million dollars plus € 20,000 option premium for the expired option). The business outright would have cost him EUR 920 000 (1 million dollars at the agreed price of EURO 0.92).
purchase of a put option by an exporter
A put option is called "Put" referred to. The purchase of a put option is for an exporter in question. Let's say, a German exporter is participating in a tender to supply a production plant. . The sale price, he calculated at $ 1 million, the exporter has so in three months, over $ 1 million - if he is successful.
First alternative: Outright business
An outright business could it already a certain exchange rate si-Chem. It could for example agree with the bank determines that it will receive in three months, a forward price of EURO 0.90. This would mean that he will receive three months of EURO 900,000.
But if he does not receive the award, he finds himself suddenly Spekulateur as a falling dollar. He has to deliver in three months, namely $ 1 million in his bank. Is the dollar that day under the agreed price of 0.90 then the exporter - not - when a business outright speculative gain achieved. He buys the dollars namely under 0.90 per dollar and sold it to his bank for 0.90 euros per dollar.
But is the dollar, for example, rose to EUR 0.95, it shall apply EURO 950 000 and receives from his bank only EURO 900,000. His loss is EURO 50,000.
Second alternative: buy a put option
is also here to consider whether the Buying a put option is the better alternative. By a put option, the exporter has secured the right to sell 1 million dollars at a specified price, the strike price. Let us assume that the base price is likewise EURO 0.90. The exporter may be limited by its loss on the put option, the option premium. On the other hand, it can obtain additional gains.
put option and rising dollar
If the dollar rises above the strike price of EURO 0.90 or just stands at 0.90 EURO, the Exporter option forfeit. If he receives the contract, he will sell a million dollars at the spot market at a price on EURO 0.90. His loss is minus the option premium price gain. If he receives the award can not, he does nothing, and loses only the option premium.
put option and a falling dollar
If the dollar falls in three months, the exercise price, the exporter will exercise the option. If he receives the contract, he will one million U.S. dollars at the strike price to sell to the bank. If it receives not successful, he buys a million dollars to the price of under EURO 0,90 in the spot market and sold it to EURO 0.90 per dollars to the bank.
Currency futures, basic idea
are in contrast to the unconditional futures options contracts, which means they must are met . They contain - The obligation to buy a certain amount of currency at a specified future date at an agreed price from the beginning or sell - in the form of a standardized contract. Since futures are standardized, they are always given Ter-mines due. The amounts are standardized. Thus, a dollar / euro contracts in London refers to a value of $ 50,000. When it comes to foreign exchange in the futures, stocks or bonds, and they are traded on an exchange, it is called financial futures.
purchase a currency futures
If a currency futures buys agrees to buy a certain amount of dollars, for example, at a previously agreed price and take off. sold
sale of a currency futures
Who a foreign exchange futures committed a specific amount for sale for example, of dollars at a previously agreed price and supply.
futures purpose
futures can be used for speculative purposes. This is known as "Tra-ding". If they are a contrast to hedge currency risks, then it is called "hedging".
Forex Futures: Hedging
The basic idea of hedging is to hedge exchange rate risk through a hedge. For example, a dollar claim their opposite-dollar debt.
Consider the following practical case: A German exporter expected in two years, $ 100 million. It secures with a hedging transaction follows from masses against the price risk: To the date on which the claim arises, he takes out a loan of $ 100 million and sold that amount immediately to the current spot rate against euro. So he owes $ 100 million, but it already has the current value received in EURO. This EURO amount he puts in the money market for two years. After two years he will receive the $ 100 million from the importer and it wipes out its dollar debt.
The principle of hedging, then, is to counter the dollar demand a more high dollar debt and too pro-euro value of the dollar debt today fiti.
However, associated with this strategy costs. There are even the banking charges and the second to the interest rate differential for the dollar debt and the investment of the equivalent in euros.
Hedging Intercompany balancing
The idea of hedging, a claim by a corresponding liability in the same currency hedge is also possible within the Group. Larger, internationally operating companies within the Group have the option of foreign currency receivables and foreign currency liabilities to each other and build up so as to balance the risk. If anyone owes the company a million dollars, the risk is that the equivalent in EURO if payment is GE-lower than now. But if at the same time, the Group owes someone one million U.S. dollars , so is on the other hand, the chance to pay the debt with a lower euro value.
foreign exchange futures and outright transactions; Comparison
Finally, we consider the similarities and differences of foreign currency futures and outright transactions.
Both shops have in common is that they are unconditional futures. You must be fulfilled in every case, whether favorable to the party or not. Both transactions must be paid fees, the amount of the bank or stock market depends.
Both businesses differ in the degree of standardization. In the out-right business, the conditions between banks and customers are individually traded off. The volume and the completion date can be tailored to the individual case. In currency futures, both the amount, and the He standardized filling time.
trade partner in the business outright is the bank. The trading partners' currency futures, the stock market.
outright transactions can not be traded. Most futures, however, can be bought or sold on the stock exchange (so-called financial futures).
Digression: swap loans
swap is swap. Let's say a German company first class Bo-affinity needs yen and a Japanese company needs with the highest standing EURO. Each lends itself to its domestic capital market, what the other needs. Then, the commitments are exchanged. The purpose of this business is that each company has its advantages on the creditworthiness of their own market to the other makes available. The Japanese company would not get the EURO to the first-class conditions, such as the German company, GE nauso as vice versa.
Inspirations Quote
"If you risk nothing risking, you all -
; ; You risk to die without ever having lived. "
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