Exchange rate risk refers to the possibility that an economic entity or individual may suffer economic losses due to the uncertainty of the value of its assets or liabilities denominated in foreign currency due to the change of foreign exchange rate in foreign-related economic activities. It is manifested in two aspects: trade exchange rate risk and financial exchange rate risk. In international trade activities, the prices of goods and services are generally denominated in foreign exchange or international currency. Under today's floating exchange rate system, it is difficult for producers and operators to estimate costs and profits in international trade activities due to frequent fluctuations in exchange rates, and the resulting risks are called trade risks; In the international financial market, all loans are foreign exchange. If the borrowed foreign exchange rate rises, the borrower will suffer huge losses, and the drastic change of exchange rate can even devour large enterprises. The fluctuation of exchange rate also directly affects the increase or decrease of the value of a country's foreign exchange reserves, which brings great risks and disasters to the management of central banks. This kind of exchange rate risk is called financial exchange rate risk. This paper mainly discusses how to avoid the risk of trade exchange rate. At present, there are several ways to avoid trade exchange rate risk:
I. hedging of forward contracts
When a multinational company takes the currency of its main trading country as the means of payment, it signs a contract with the other party, stipulating that the company will pay the agreed amount of currency to it at a certain date in the future in order to obtain another long-term payment currency (means of payment). This transaction is called forward contract hedging.
The vast majority of forward hedging contracts are signed between companies and their banks or other banks.
Suppose that ABC multinational company opens a subsidiary (Company H) in the United States, and Company H sells the goods of $6,543,800+to a Norwegian importer. The exchange rate on the day the goods were sold was NOK 9 to US$ 65,438+0 (NOK 9 = US$ 65,438+0), so the total payment was NOK 9 million. It is agreed that the importer will pay NOK 9 million to the exporter within 180 days. Now H Company bears any risk of exchange rate changes between the US dollar and RMB. If the Norwegian krone depreciates, such as 1 1 NOK 1 USD, then in this 180 days, when Company H receives the 9 million NOK, it is only equivalent to 8 18 1 USD. The expectation of company H is to receive $6,543.8+0,000, and the exchange rate change caused a loss of $ 654.38+08 18 19.
Company H in the United States can use the forward contract to protect itself from such losses, that is, within 65,438+080 days, it will pay the counterparty of the hedging contract 9 million NOK, and the counterparty agrees to pay Company H $654,380+000 in exchange. Because the krona may depreciate in this 180 day, the other party will ask for risk compensation. Suppose the other party asks for 1% compensation, and Company H agrees, that is to say, 1% is10,000 dollars, then the other party only needs to pay 990,000 dollars to get 9 million kronor from China exporters. Compared with the above-mentioned Krone Depreciation H Company only received 81818, the company's loss decreased by 17 18 19.
In our example, the financial manager of a competent exporter will compare with the bank and find a cheaper price to trade. Norwegian krone is not traded in the international money market of Chicago Mercantile Exchange. If the currency used for payment is one of the eight trading currencies there, namely, British pound, Canadian dollar, German mark, Dutch guilder, French franc, Japanese yen, Mexican peso and Swiss franc, then the financial manager should also get an IMM contract quotation.
Second, currency futures hedging.
If the wealth management manager enters a commodity or stock exchange for foreign exchange hedging (such as using IMM contracts), the hedging involves futures contracts, not forward contracts. In the international money market, trading currencies are usually regarded as commodities and traded in the form of futures contracts. The hedging cost of futures contracts is different from that of forward contracts, which is not determined by a bank, but is formed by open and fair bidding by all parties in the exchange. Futures contracts are bought and sold by brokers, and exporters must open margin accounts with brokers. The amount of futures contracts is fixed, such as 25,000 pounds, and the standard delivery date is used. Financial managers can use the rise or fall of the relative value of a currency in the futures market to avoid foreign exchange risks and even speculate for the company. This is mainly achieved by buying or selling futures and establishing long or short positions.
For the company, the two situations mentioned above have good results, but the company is also risky. The fluctuation of short-term monetary value has great uncertainty in direction and amplitude. If the currency goes in the opposite direction, those companies (or wealth managers) can only accept a bad ending. Those who study money markets or market transactions are very careful to predict short-term trends.
Third, currency option hedging.
Option refers to the buyer's right to buy and sell in a certain period of time in the future (American option) or a certain date in the future (European option) after paying a certain amount (royalty) to the seller.
Option) the right to buy or sell a certain number of specific subject matter from the seller at a pre-agreed price (referring to the performance price), but there is no obligation to buy or sell. Option trading is actually the trading of such rights. The buyer has the right of execution and the right of non-execution, and can choose flexibly. Option, also known as agreed option, is developed on the basis of highly developed futures trading. It is common to trade securities options on the stock exchange. That is to say, the option buyer can buy and sell a certain number of stocks at a fixed price on the specified future date (3 months, 6 months or 9 months) by paying the insurance premium or deposit in advance. For stocks whose prices are expected to rise, you need to get call options, that is, the right to buy stocks at an agreed price (relatively low) when the stock price rises; For stocks whose prices are expected to fall, you need to get a put option, that is, when the stock price falls, you have the right to sell the stock at the agreed price (relatively high) when you buy the option. If the stock price does not change as expected, the option is allowed to be invalid. This can achieve the purpose of hedging and avoiding risks. Currency option refers to the transaction in which both parties buy or sell a foreign exchange option in a certain period in the future based on currency and according to the agreed exchange rate. Currency option is an important means to prevent foreign exchange risks. When the currency option contract is executed, it can be delivered in kind or at a price difference. The trading principle of currency options is the same as other options. Buying a call option and selling a put option at the same transaction price can constitute a hypothetical long-term purchase.
Currency options are developing very rapidly, and the trading volume is increasing. The earliest currency option contract is the Canadian dollar option contract 1982 1 1 started in Montreal, Canada in June. Subsequently, the exchange successfully launched currency options such as British pound, German mark, Swiss franc and Japanese yen, and in 1985, the Netherlands launched European currency unit options, with the number of foreign exchange options reaching US$ 20 billion. 1988 There are1800 million currency option contracts listed in the world, which has become a flexible financial tool for preventing foreign exchange risks and hedging.
Four. Hedging in credit market or money market
Hedging in the credit market or money market involves credit-that is, borrowing money. The company eager to hedge is the borrower. Suppose a company will use10 million euros in three months, how to preserve its value through the money market? The first operation strategy: suppose I have idle funds on hand today, I will convert my local currency into euros today; The second method: suppose you have no money on hand and need to borrow money from the bank. Borrow RMB today and deposit it in euros. It will expire in three months and be paid in euros, so don't worry even if the euro appreciates. This is the hedging of the money market.
Before using the credit or money market for hedging, the exporter must compare the interest rates of his country and the importer's country. If the interest of the exporter's loan in the importing country is much higher than the profit he gets from using the money, then the cost of such hedging may be too great.
Verb (abbreviation for verb) currency exchange
What do you mean by exchange? That is, assets or liabilities that were originally in a foreign currency, I will exchange them with others and exchange them for another one. For example, a British company and an American company, the British company has an investment project in the United States, and this investment project will gradually receive US dollars after five years, while American companies also have some projects in the United Kingdom that will receive British pounds. For British companies, the pound is better, and for American companies, the dollar is better. They trade through the role of financial intermediaries. According to the agreed exchange rate, today my American company reached an agreement with the British company. Five years later, you exchange pounds for me and I exchange dollars for you. This is the so-called exchange. Some banks are also doing it for enterprises. They convert euro foreign debts into dollar debts, and then they need to pay in dollars. Another company itself wants to pay in euros, and just can find two matching companies. It will play this role through financial termination and lock in risks for both parties.
6. Accelerate payment or postpone payment.
We assume that according to the payment contract, the importer must pay in the currency of the exporter's country. If the importer predicts that the domestic currency will appreciate relative to the foreign supplier's currency, it is beneficial for his company to delay payment. On the contrary, if the importer predicts that the domestic currency will depreciate relative to the foreign supplier's currency, it will help his company to speed up the payment.
For example, when the exchange rate is NOK 9 to US$ 65,438+0, if the importer agrees to pay US$ 654,380+0, then the cost at this time is equivalent to NOK 9 million. If the exchange rate drops to 10 NOK 1 USD at the time of payment. At this time, its cost is 6,543,800,000 NOK. In this case, the importer should pay for the goods in advance, or if possible, exchange foreign exchange immediately, and then pay in foreign exchange when the payment date comes. Of course, on the contrary, if the importer predicts that the Norwegian kroner will appreciate from NOK 9 to USD 65,438+0 when signing the purchase contract, then the payment should be postponed and the NOK should be converted into USD.
Payment between unrelated companies: Although independent unrelated companies can use early or late payment measures to resolve the risk of foreign exchange settlement in transactions, it is at the expense of the other party. However, as long as exporters can receive the agreed payment in full and on time, they usually don't care about the methods adopted by importers to protect themselves from currency risks. On the contrary, multinational companies located in the importing country and wishing to pay in the currency of the exporting country should be aware of the benefits of using early payment and late payment measures to the company as a whole.
Payment between internal business entities of multinational corporations: There are different types of multinational corporations. Different types of multinational companies take different measures between their internal branches to advance or delay payment. The advance and delay of international payment between unrelated companies are usually irrelevant to the exporter, as long as it can receive the payment stipulated in the agreement. The same is true of multinational companies with independent branches. However, for a multinational company that can coordinate on a global scale, early or delayed payment measures can benefit the company as a whole. The overall goal of such companies is to convert their weak currencies into strong currencies as soon as possible within a moderate range. Therefore, in the process of waiting for forward payment within independent multinational companies, hedging costs will occur. If the branches of coordinated multinational companies trade with each other in weak currencies, they should pay immediately; If the transaction is conducted in a strong currency, payment shall be postponed until the payment date.