Introduction to Foreign Exchange Risk Hedging for Exporter and Importer

  

About this Course

A change in exchange rates will result in exporters receiving a lower amount of the local currencies than originally anticipated while importers has to pay more than planned. Transaction exposure to foreign exchange risk will impacts the cash flow of the company due to the results from the effects of unanticipated changes in the spot exchange rate on the base currency value of foreign currency cash flows via contractual payables and receivables.

Managing foreign exchange risk may seem too complex, costly or time-consuming for some companies. Other companies may not know about hedging instruments and techniques or believe that hedging is a speculative activity. For companies that choose not to manage foreign exchange risk, they may be assuming that exchange rates will remain at their present levels or move in a direction that will be favourable to the company – something that closely resembles speculation.

Numerous studies have found that managing foreign exchange risk can successfully reduce your company’s foreign exchange exposure. Managing foreign exchange risk provides the following benefits to companies:

  • Minimise the effects of exchange rate movements on profit margins
  • Increase the predictability of future cash flows
  • Eliminate the need to accurately forecast the future direction of exchange rates
  • Facilitate the pricing of products sold on export markets
  • Protect, temporarily, a company’s competitiveness if the value of the local currency rises (thereby buying time for the company to improve productivity)

The workshop is a foundation level risk management course which provide participants with a comprehensive insight and understanding of foreign exchange / currency market, its derivative product structures and pricing conventions. It should be especially useful for those in corporate finance, treasury and risk management.

Objectives

Upon completion of this workshop, participants will be able to;

  • Have an overview of Global financial markets and Corporate Risk Management
  • Learn the Prima in foreign exchange market (Foreign exchange spot market, Foreign exchange forward market, Foreign exchange future market and Swaps)
  • Learn Foreign exchange options, exotics options and structured products
  • Understand the various hedging techniques used by all market participants to manage currency risk for corporate
  • Understand how currency hedging can be integrated into organisations’ daily decision-making processes to enhance stakeholders understanding and awareness of currency risk inherent within any form of operations in the organisations

Target Audience

This workshop is beneficial for anyone who have keen interest and wishes to gain an insight into risk management.

Duration

Two days

Curriculum

Overview of Global Financial Markets

  • How global financial markets structures have evolved since Lehman crisis;
  • Government / central bank’s policy role and how are they reshaping the financial markets;
  • Overview of foreign exchange market, interest rate market and commodity market: before and after the Lehman crisis, the development of global currencies (e.g. USD, JPY, EUR etc.) vs. Asian Emerging Markets currencies (SGD, CNY, CNH, HKD, IDR etc.

Overview of Corporate Risk Management (Enterprise Risk Management - ERM)

  • Basic ERM infrastructure: Concept and evolution of ERM;
  • Risk management at Corporate, Strategic Business and Project levels: Sources of Risks / Type of Risks, Creating value from Risk Taking / Risk Hedging and Risk Management Process;
  • Common approaches to ERM by organisations: CAS Framework, AIRMIC framework and COSO framework of Identification of Risk and Enterprise Management Objectives, Assessing Risk, Managing Risks: Principal Strategies and Methods, and finally Monitoring Risks.
  • Risk Management and Corporate Governance: Concept and theoretical perspective of Corporate Governance (Agency Theory, Transaction Cost Theory etc.) and Concept / Components of Risk Governance (Roles and Responsibilities, Organisational Structure and Policies / Procedures).

Prima in Foreign Exchange Market

  • History background, FX market today, regulatory environment and central bank intervention summary
  • Foreign exchange spot market: quoting conventions, deliverable vs. non-deliverable market, purchasing power parity, settlement
  • Foreign exchange forward market: forward pricing, interest rate parity (covered interest arbitrage), deliverable vs. non-deliverable, settlement
  • Foreign exchange futures market: futures vs. forwards, futures contract specifications, use of futures and options on futures
  • Swaps: FX swaps and cross currency swap

Foreign exchange options

Option basics: pricing terms, In-the-money, at-the-money, out-of-the-money

Put-call parity and the “Greeks”

Volatility: implied vs. realized volatility, skew and smile adjustment

Common uses and strategies: Traditional hedging strategies, bull / bear spreads, other spreads (butterfly, condor, ratio, calendar), other combinations (straddles, strangles)

Theoretical Option valuation: Black-Scholes, Binomial.

Exotics Options and Structured Products

  • Digital or binary option, barrier option, other exotic option: pricing and applications
  • Correlation structures, autocallable structures and cliquet structures.
  • Structured product: combinations of plain vanilla options and plain vanilla / exotics options
Structuring Corporate Applications for Hedging Currency Exposure Using Options

  • Call, put, collar, range forward, participating forward, ratio forward, knock-out forward, smart forward: Suitability, pricing and applications
  • How to actively manage option position: restructuring of existing option contracts
  • Measuring foreign exchange risk: VAR (value-at-risk) and CF@R (Cash Flow at risk)
How to Develop a Foreign Exchange Hedging Policy for a Corporate: Considerations and Case Studies

Methodologies

This course is learner-centred and active participation by attendees are highly encouraged.  Case studies are used to ensure understanding and reinforce concepts.

Rate this course:

Comments

Course Rating

  • /5 from users

Course Enquiry

Course Info

Similar Courses Provided By Other Providers