1、Chapter Objective:This chapter discusses various methods available for the management of transaction exposure facing multinational firms.This chapter ties together chapters 4,5,and 6.13Chapter ThirteenManagement of Transaction Exposure8-0Transaction ExposurelTransaction exposure can be defined as th
2、e sensitivity of realized home currency values of the firms contractual cash flows denominated in foreign currencies to unexpected exchange rate changes.lSince settlement of these contractual cash flows affect the firms home currency cash flow,transaction exposure is regarded as a short-term economi
3、c exposure.lTransaction exposure arises from fixed-price contracting in a world where exchange rates are changing randomly.ExamplelConsider a Japanese firm entering into a loan contract with a Swiss bank that calls for the payment of SF100M for principle and interest in one year.Since Yen/Swiss is u
4、ncertain,the Japanese firm does not know how much Yen it will take to buy SF100M spot in one years time.If the Yen appreciates(depreciates)against the Swiss Franc,a smaller(larger)Yen amount will needed to pay off the SF-denominated loan.Hedging Transaction ExposurelThe set points of this chapter is
5、 to introduce various methods available for the management of transaction exposure facing multinational firms.lFinancial ContractslForward market hedgelMoney market hedgelOption market hedgelSwap market hedgelOperational TechniqueslChoice of invoice currencylLead/lag strategylExposure netting(风险暴露的净
6、额结算)Chapter Outlinel13.1 Forward Market Hedgel13.2 Money Market Hedgel13.3 Options Market Hedgel13.4 Cross-Hedging Minor Currency Exposure(次要货币风险暴露的交叉避险)l13.5 Hedging Contingent Exposure(或有风险避险)l13.6 Hedging Recurrent Exposure with Swap Contracts(通过互换合同对周期性风险暴露的避险)8-45Chapter Outline(continued)l13.7
7、 Hedging Through Invoice Currencyl13.8 Hedging via Lead and Lagl13.9 Exposure Nettingl13.10 Should the Firm Hedge?l13.11 What Risk Management Products do Firms Use?8-513.1 Forward Market Hedge:ExportslIf you are going to receive foreign currency in the future,agree to sell the foreign currency in th
8、e future at a set price by entering into short position in a forward contract.Forward Contract CounterpartyExporterForeign CustomerGoods or Services Foreign CurrencyDomestic CurrencyForeign CurrencyForward Market Hedge:ImportslIf you expect to owe foreign currency in the future,you can hedge by agre
9、eing today to buy the 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 CurrencyForward Market Hedge:Importers ExampleForward Contract Co
10、unterpartyU.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 like this:9Forward M
11、arket Hedge$1.50/Value of 1 in$in one yearSuppose the forward exchange rate is$1.50/.If he does not hedge the 100m payable,in one year his gain(loss)on the unhedged position is shown in green.$0$1.20/$1.80/$30m$30mUnhedged payableThe importer will be better off if the euro depreciates:he still buys
12、100m but at an exchange rate of only$1.20/he saves$30 million relative to$1.50/But he will be worse off if the pound appreciates.8-910Forward Market Hedge$1.50/Value of 1 in$in one year$1.80/If he agrees to buy 100m in one year at$1.50/his gain(loss)on the forward are shown in blue.$0$30m$1.20/$30mL
13、ong forwardIf you agree to buy 100 million at a price of$1.50 per pound,you will lose$30 million if the price of the euro falls to$1.20/.If you agree to buy 100 million at a price of$1.50/,you will make$30 million if the price of the euro reaches$1.80.8-10Forward Market Hedge$1.50/Value of 1 in$in o
14、ne year$1.80/The red line shows the payoff of the hedged payable.Note that gains on one position are offset by losses on the other position.$0$30 m$1.20/$30 mLong forwardUnhedged payableHedged payable8-11Futures Market Cross-Currency HedgeYour firm is a U.K.-based exporter of bicycles.You have sold
15、750,000 worth of bicycles to an Italian retailer.Payment(in euro)is due in six months.Your firm wants to hedge the receivable into pounds.Sizes of forward contracts are shown.CountryU.S.$equiv.Currency per U.S.$Britain (62,500)$2.0000 0.50001 Month Forward$1.9900 0.50253 Months Forward$1.9800 0.5051
16、6 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$1.5100 0.66238-12Futures Market Cross-Currency Hedge:Step One lYou have to convert the 750,000 receivabl
17、e first into dollars and then into pounds.lIf 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-month euro futures contracts.6 contracts =750,000125,000/contract8-13Futures Market Cross-Currency Hedge:Step Two lSelling the 750,
18、000 forward at the six-month forward rate of$1.50/generates$1,125,000:9 contracts =562,50062,500/contract$1,125,000=750,000 1$1.50lAt the six-month forward exchange rate of$2/,$1,125,000 will buy 562,500.lWe can secure this trade with a LONG position in 9 six-month pound futures contracts:8-14Export
19、ers 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$1.50/1Long position in 9 six-month pound futures on 62,500 at$2.00/1 Bicycles$1,125,000562,50013.2 Money Market HedgelThis is the same idea
20、 as covered interest arbitrage.lTo hedge a foreign currency payable,buy a bunch of that foreign currency today and sit on it.lBuy the present value of the foreign currency payable today.lInvest that amount at the foreign rate.lAt maturity your investment will have grown enough to cover your foreign
21、currency payable.8-16Money Market HedgeA U.S.based importer of Italian bicycleslIn one year owes 100,000 to an Italian supplier.lThe spot exchange rate is$1.50=1.00lThe one-year interest rate in Italy is i=4%$1.501.00Dollar cost today=$144,230.77=96,153.85 100,0001.0496,153.85=Can hedge this payable
22、 by buyingtoday and investing 96,153.85 at 4%in Italy for one year.At maturity,he will have 100,000=96,153.85 (1.04)8-17Money Market Hedge$148,557.69=$144,230.77 (1.03)lWith this money market hedge,we have redenominated a one-year 100,000 payable into a$144,230.77 payable due today.lIf the U.S.inter
23、est rate is i$=3%we could borrow the$144,230.77 today and owe in one year$148,557.69=100,000(1+i)T(1+i$)TS($/)8-18$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
24、00 T=1 cash flowsdeposit i=4%96,153.85Money Market Cross-Currency HedgelYour firm is a U.K.-based importer of bicycles.You have bought 750,000 worth of bicycles from an Italian firm.Payment(in euro)is due in one year.Your firm wants to hedge the payable into pounds.lSpot exchange rates are$2/and$1.5
25、5/lThe interest rates are 3%in,6%in$and 4%in,all quoted as an APR.lWhat should you do to redenominate this 1-year-denominated payable into a-denominated payable with a 1-year maturity?8-20Money Market Cross-Currency HedgeSell pounds for dollars at spot exchange rate,buy euro at spot exchange rate wi
26、th the dollars,invest in the euro zone for one year at i=3%,all such 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 728,155.34Step 4:Invest
27、in the euro zone for 12 months at 3%APR(the future value of the investment equals 750,000.)Step 5:Repay your borrowing with 586,893.20 8-21Money Market Cross-Currency HedgelWhere do the numbers come from?586,893.20=564,320.39 (1.04)728,155.34=750,000(1.03)$1,128,640.77=728,155.34 1$1.55564,320.39=$1
28、,128,640.77$218-22Importers 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
29、T=1 cash flows13.3 Options Market HedgelOptions provide a flexible hedge against the downside,while preserving the upside potential.lTo hedge a foreign currency payable,buy calls on the currency.lIf the currency appreciates,your call option lets you buy the currency at the exercise price of the call
30、.lTo hedge a foreign currency receivable,buy puts on the currency.lIf the currency depreciates,your put option lets you sell the currency for the exercise price.8-24Options Market Hedge$1.50/Value of 1 in$in one yearSuppose the forward exchange rate is$1.50/.If an importer who owes 100m does not hed
31、ge the payable,in one year his gain(loss)on the unhedged position is shown in green.$0$1.20/$1.80/$30m$30mUnhedged payableThe importer will be better off if the euro depreciates:he still buys 100m but at an exchange rate of only$1.20/he saves$30 million relative to$1.50/But he will be worse off if t
32、he euro appreciates.8-25Options Markets HedgeProfitloss$5m$1.55/Long call on 100m Suppose our importer buys a call option on 100m with an exercise price of$1.50 per pound.He pays$.05 per euro for the call.$1.50/Value of 1 in$in one year8-26Value of 1 in$in one yearOptions Markets HedgeProfitloss$5m$
33、1.45/Long call on 100m The payoff of the portfolio of a call and a payable is shown in red.He can still profit from decreases in the exchange rate below$1.45/but has a hedge against unfavorable increases in the exchange rate.$1.50/Unhedged payable$1.20/$25m8-27$30 m$1.80/Value of 1 in$in one yearOpt
34、ions Markets HedgeProfitloss$5 m$1.45/Long call on 100m If the exchange rate increases to$1.80/the importer makes$25 m on the call but loses$30 m on the payable for a maximum loss of$5 million.This can be thought of as an insurance premium.$1.50/Unhedged payable$25 m8-28Options Markets HedgeIMPORTER
35、S who OWE foreign currency in the future should BUY CALL OPTIONS.lIf the price of the currency goes up,his call will lock in an upper limit on the dollar cost of his imports.lIf the price of the currency goes down,he will not exercise the option and buy the foreign currency at a lower price.EXPORTER
36、S with accounts receivable denominated in foreign currency should BUY PUT OPTIONS.lIf the price of the currency goes down,his puts will lock in a lower limit on the dollar value of his exports.lIf the price of the currency goes up,he will not exercise the option and sell the foreign currency at a hi
37、gher price.With an exercise price denominated in local currency8-29Hedging Exports with Put OptionslShow the portfolio payoff of an exporter who is owed 1 million in one year.lThe current one-year forward rate is 1=$2.lInstead of entering into a short forward contract,he buys a put option written on
38、 1 million with a maturity of one year and a strike price of 1=$2.lThe cost of this option is$0.05 per pound.8-3031S($/)360$2m$2Long receivableLong put$1,950,000$50kOptions Market Hedge:Exporter buys a put option to protect the dollar value of his receivable.$50k$2.05Hedged receivable8-31同时持有单一期权加上单
39、一标的物的交同时持有单一期权加上单一标的物的交易策略易策略ProfitSTE投资者的组合包括一个标的物长头寸和一个卖权的长头寸，此即保护性卖权的战略(protective put strategy)标的物长头寸卖权的长头寸P+S0=c+D+Ee-rT 33S($/)360$2The exporter who buys a put option to protect the dollar value of his receivable$50k$2.05Hedged receivablehas essentially purchased a call.8-33Hedging Imports wit
40、h Call OptionslShow the portfolio payoff of an importer who owes 1 million in one year.lThe current one-year forward rate is 1=$1.80;but instead of entering into a long forward contract,lHe buys a call option written on 1 million with an expiry of one year and a strike of 1=$1.80 The cost of this op
41、tion is$0.08 per pound.8-3435$1.8mS($/)360$1.80Unhedged obligationCall$80k$1.88$1,720,000$1.72 Call option limits the potential cost of servicing the payable.Options Market Hedge:Importer buys call option on 1m.8-35同时持有单一期权加上单一标的物同时持有单一期权加上单一标的物的交易策略的交易策略ProfitSTE投资者的组合包括一个标的物的短头寸和一个买权的长头寸，此即买进有保障的卖
42、权战略标的物短头寸买权的长头寸-S0+c=-D-Ee-rT+p37S($/)360$1.80$1,720,000$1.72Our importer who buys a call to protect himself from increases in the value of the pound creates a synthetic put option on the pound.He makes money if the pound falls in value.$80kThe cost of this“insurance policy”is$80,0008-37Taking it to
43、 the Next LevellSuppose our importer/experter can absorb“small”amounts of exchange rate risk,but his competitive position will suffer with big movements in the exchange rate.lLarge dollar depreciations increase the cost of his importslLarge dollar appreciations increase the foreign currency cost of
44、his exports,then his customers will focus on developing their own domestic market.8-3839Our Importer Buys a Second Call OptionS($/)360$1.80$1,720,000$1.72$80kThis position is called a straddle(跨式组合跨式组合)$1.64$1.96$1,640,000$160k2ndCall$1.88Importers synthetic put8-3940S($/)360$1.80$1,720,000$1.72Supp
45、ose instead that our importer is willing to risk large exchange rate changes but wants to profit from small changes in the exchange rate,he could lay on a butterfly spread.$80kA butterfly spread(蝶式价差)lets the investors profit from small changes in the exchange rate.Selling the 2 puts comes close to
46、offsetting the cost of buying the other 2 puts.$2buy a put$2 strikebutterfly spreadSell 2 puts$1.90 strike.$1.90Importers synthetic put8-4041OptionslA motivated financial engineer can create almost any risk-return profile that a company might wish to consider.lStraddles and butterfly spreads are qui
47、te common.lNotice that the butterfly spread costs our importer quite a bit less than a nave strategy of buying call options.8-4113.4 Cross-Hedging Minor Currency Exposure(次要货币风险暴露的交叉避险次要货币风险暴露的交叉避险)lThe major currencies are the:U.S.dollar,Canadian dollar,British pound,Euro,Swiss franc,Japanese yen.l
48、Everything else is a minor currency,like the Thai.lIt is difficult,expensive,or impossible to use financial contracts to hedge exposure to minor currencies since financial markets of developing nations are relatively underdeveloped and highly non-regulated.8-42Example(cross-hedging)lSuppose a US fir
49、m has an account receivable in Korean won and would like to hedge its own position.If there were a well-function forward market in won,the firm would simply sell the won receivable forward.But the firm finds it is hard to do so.However,since the won/dollar FX rate is highly correlated with the yen/d
50、ollar FX rate,the firm may sell a yen amount equivalent to the won receivable,forward short against the dollar.Cross-Hedging(交叉套期保值交叉套期保值)Minor Currency ExposurelCross-Hedging involves hedging a position in one asset by taking a position in another asset.lThe effectiveness of cross-hedging depends u
