Slide 1 Nong Thi Nhu Mai – Faculty of Commerce – 0966 77 88 65 – nongthinhumaiyahoo com CHAPTER 2 EXCHANGE RATES AND FINANCIAL DERIVATIVES ON THE FOREIGN EXCHANGE MARKET 1 Nong Thi Nhu Mai – Faculty. On 12th July, the exchange rate of EUR and VND is as follows: EURVND = 29,160 – 29,510 The interest rate per year: EUR = 5% 7% year; VND = 8% 12% year Company A in HCMC is going to receive 2,500,000 EUR for its export on 12th Dec. The premium of Put option with maturity of 5 months is 530 VNDEUR. The strike rate in put option contract is also the spot rate at the contract date. Assumption: on 12th Dec, the exchange rate in HCMC: EURVND = 31,850 – 32,670 Requirements: Consider Forward transaction, and Option transaction to hedge the exchange rate risks and earn interests if they predict exactly the trend of the exchange rate as the above assumption? Present those solutions and calculate profits (losses) of the company for each transaction
Trang 1CHAPTER 2:
EXCHANGE RATES AND FINANCIAL DERIVATIVES
ON THE FOREIGN EXCHANGE MARKET
Trang 2On 12th July, the exchange rate of EUR and VND is as follows:
EUR/VND = 29,160 – 29,510
The interest rate per year: EUR = 5% - 7%/ year; VND = 8% - 12%/ year Company A in HCMC is going to receive 2,500,000 EUR for its export on 12th Dec
The premium of Put option with maturity of 5 months is 530 VND/EUR The strike rate in put option contract is also the spot rate at the contract date
Assumption: on 12th Dec, the exchange rate in HCMC:
EUR/VND = 31,850 – 32,670
Requirements: Consider Forward transaction, and Option transaction to
hedge the exchange rate risks and earn interests if they predict exactly the trend of the exchange rate as the above assumption? Present those solutions and calculate profits (losses) of the company for each transaction
EXERCISE 1
Trang 3EXERCISE 2
On 02/12/2007, Company X (HCMC) signed a deferred contract under 90 days for a company in USA The contract value is
300,000 USD Payment would be made on 02nd March 2008.
To avoid the exchange rate fluctuation, which transactions could the company do? Present those transactions.
Where,
On 02nd December 2007, the exchange rate in Vietnam: 16,050 – 16,054
Interest rate per year:
USD: Deposit: 4%; Lending: 6% ; VND: Deposit:9% ; Lending: 12% Premium for options contract: 50 VND/USD,
Trang 4EXERCISE 3
On 8th Sep 200x, ABC Co., signs an import contract worth 1,000,000 CNY The spot rate is 1 CNY =1,910 VND Turnover of the company is in VND The board of director worries that the exchange rate can fluctuate
disadvantageously and takes 3 following solutions into consideration:
a, Buy CNY under Forward contract for 07th Dec 200x, the rate offered by the bank is 1CNY = 1,922 VND
b, Buy Options contract with the strike rate of 1CNY = 1,920 VND on 08th Sep 200x Each option is equal to 6,250 CNY The premium for each option
is 70,000 VND
c, Borrow a sum of money in VND from a Vietnam bank, then exchange into CNY and deposit it into a China bank Calculate the amount of money which needs to be borrowed on 08th Sep 200x
Requirements: Calculate each solution, then make your own decision
Trang 5EXERCISE 3
Where,
Interest rate Deposit Lending
VND: 0.5%/month 0.6%/month CNY: 0.7%/month 0.8%/ month
Trang 6EXERCISE 4
On 25th July 201x, a Vietnam company – Lotus Co – signs an
contract to import computers worth 250,000 USD, which is
expected to deliver on 25th August of the same year The
supplier of computers accepts 2-month deferred payment from the date of delivery To hedge risks of exchange rate fluctuation, right from 25th July 201x, the company may choose one of two following solutions:
•Sign a forward contract to buy the above sum of foreign
currency.
•Buy a call option contract of 250,000 USD with the maturity of
25 Oct 201x, the premium of 50,000 USD for each 9,500,000
VND, and the strike rate of USD/VND = 22,520.
Trang 7EXERCISE 4
Questions:
a, According to you, which solution should Lotus company
choose with the supposed rate and interest on Vietnam market
on 25 July 201x as follows:
•Exchange rate of USD/VND = 21,910 – 21,950
•Interest rate of USD: deposit 3%/year, lending 5%/year
•Interest rate of VND: deposit 8%/year, lending 12%/year
b, With all suppositions of (a), Lotus company plans to use the currency market to guarantee the foreign exchange Calculate