Treasury Consulting. Your Partner for effective Cash Management. Currency Management

Transcription

1 Treasury Consulting Your Partner for effective Cash Management Currency Management

2 Money is like an arm or a leg, use it or lose it Henry Ford 2

3 Introduction Currency Exposure will be considered as absolute amounts in form of outstanding amounts and liabilites, which depend on currency fluctuations. The sum of all liabilities and accounts receivables in foreign currencies is the Net-Exposure. The risk of such an Exposure results by insecurity regarding the exchange rate fluctuation. Curreny Exposures can be transactional or translational following only the transactional exposure will be considered. 3

4 Targets of the Currency Management Different appendages define the target of Currency Management to the individual hedging of a certain cash flow in the future. Example: Sale of pcs product P in currency C at term T. The target is to eliminate negative currency impacts. In most instances this happens by fixing a rate for the determined sale. But an exchange rate can always move in both directions. Question: How a minimization of a risk can be achieved at simultaneous chance of positive currency fluctuation? 4

5 Kinds of Hedging The individual advantages and disadvantages of the following products we would like to explain you in a personal conversation or if you a interested in general, also in form of a training. Buying/selling of foreign currency in the Money Market Forwards Options Futures There is also a possibility of hedging in other currencies than the underlying is. This is appropriate with currencies which are not or only difficult to convert, e.g. CNY, KRW or YTL. If you make up the balance according to IAS, an accurate efficiency check is essential! 5

6 Difficulty Nobody is able to predict if an exchange rate move to the one or the other direction. Also the famoust analysts can only speculate. Therefore the key-question is: Does the risk controls us or do we control the risk? 6

7 Solution 1) Loosen from intuitions and emotions, independent of what kind of experiences you have already made with. It is a matter of luck, comparable with a Casino- Strategy. 2) To forecast the past is not difficult. To find explanations, even not. Just easier is it to take the opinion of other people (e.g. analysts) for your own actions. Therefore, the condition for a successful Currency Management is, to accept the risk. 7

8 From Risk to Opportunity I. Qualifying the risk (Export / Import / Financing / Profit) II. Quantifying the risk (total risk amounts at present is USD ) III.Controlling the risk and detecting chances - a) risk potential vs. value at Risk - b) systematic covering procedure 8

9 From Risk to Opportunity Value at Risk 10' ' ' % 3% 5% 7% 9% 11% 13% 15% 17% 19% 21% 23% 25% 27% 29% 31% 33% 35% 37% 39% -10' Risikopotential -15' ' ' ' ' ' Parameter: - EUR/CHF 750'000 - Spot Volatilität 1 Monat 3% -45' Wahrscheinlichkeit in % 9

10 From Risk to Opportunity Systematics By systematically spreading of the fixed market value an annual average will be reached, which anticipates, that variations of the market price distort the result. 100% 80% 60% 40% Sicherungslevel 20% Jan Feb Mrz Apr Mai Jun Jul Aug Sep Okt Nov Dez 10

11 From Risk to Opportunity Systematics It is appropriate to optimize based on a worst-case-scenario. From this point one can improve hedging activities to the top. In this process an optimum on flexibility should be achieved with low costs as possible. One solution is a zero-cost-option strategy which we are pleased to introduce you in a personal meeting. Following an example for USD/CHF 10 Mio for 2 years: 11

12 From Risk to Opportunity Systematics 1'500'000 Zero-Cost-Options with 100% Protection 50% will be sold at Expiry >1.30 at 1.30 (Indication was calculated with an actual spot rate of 1.30) 1'000' '000 - Result in CHF -500'000-1'000'000-1'500' Unprotected Expiry 6 Months Expiry 12 Monts Expiry 18 Months Expiry 24 Months -2'000'000-2'500'000-3'000'000-3'500'000 Spot Rate at Expiry 12

13 Conclusion A methodical risk structure enables you to control the risk, realize chances and convert it into direct and indirect optimization of the result. Particularly the indirect measures provides you with a clear competitive advantage. This brochure does not include any offers for persons or institutions with US-citizenship. At set-up and dismantling of systematic risk structures, it is indispensable, to consult a partner, who has a special experience and know-how, a partner, who is independent of following businesses of the currency management, to guarantee the best and sustainable success. We are looking forward, to be your partner! 13

14 Contact Treasury Consulting Ikarusstrasse 9 CH-9015 St.Gallen Tel. +41 (0) Fax +41 (0) Mobile +41 (0) info@treasury-consulting.ch 14