国际金融英文版ch6.ppt

Chapter 6 Financial Derivatives for Currency Risk Management Introduction to Financial Derivatives Financial derivatives are financial instruments whose values are derived from an underlying asset such as a stock or a currency. Derivatives are mainly used to hedge against interest rate and foreign exchange risk. They are also used to speculate. Currency forwards, currency futures and options, currency swaps are main derivatives in the derivatives market. Currency Futures The violent fluctuations of commodity prices led to the creation of futures market. The collapse of the Bretton Woods pegged exchange rate system is the main reason for the first currency futures contract. Currency futures contract was created to cover the foreign exchange risk. Forward versus CME Futures Contracts Features of Currency Futures Futures contracts are standardized contract in terms of the currencies traded, contract size, and maturity of the contract. For example, (CME) JPY futures contract contract size: ￥12,500,000 expiration date: third Wed. of March, June, September, and December Example of Marking to Market A client takes long position in a Swiss franc futures contract on Monday morning. Contract size: SFr125,000 Price of the contract: $0.85/SFr Initial margin: $2,000 Maintenance margin: $1,500 (Margin call will be issued if funds in margin account are less than $1,500) Cost of the contract: 0.85 x 125,000 = $106,250 Futures InformationMexican Peso Futures US$/Peso (CME) Hedging or Speculating with a Currency Futures Contract An example of hedging The Texas Instrument has 100 million Danish kroner obligation due in September. Contract size: USD50,000 (Euronext standard) Futures price: DKr1.25/$ Maturity: September Currency Options An currency option provides investors, hedgers, or speculators with an instrument that have a one-sided payoff on a currency transaction. An option