Mark Fielding-Pritchard

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Presentation transcript:

Mark Fielding-Pritchard Casasophia Mark Fielding-Pritchard mefielding.com

Hedge Required Receipt of $20m Forward Rate 1.3623 Receive €14681054 mefielding.com

Future 1 Buy euros 5 month (20m/1.3698)/125000=117 Today we buy 117 5 month euros mefielding.com

Future 2 Current basis risk 1.3618 – 1.3698 = $0.008 4/5 will disappear leaving 0.0016 Assume spot in 4 months is 1.3623 Futures price is 1.3639 Bought 1.3698 Sold 1.3639 Loss 0.0059 Loss 0.0059 x 125000 x 117 $86288 Receipt 20000000 $19913712 @1.3623 €14617714 mefielding.com

Options Effective Price 1.36 + 2.80 1.388 Best for us 1.38 + 2.23 Buy euros, calls 5 month expiry (20m/1.36)/125000= 117 contrcats Buy 117 5 month calls Effective Price 1.36 + 2.80 1.388 Best for us 1.38 + 2.23 1.4023 mefielding.com

Options 2 Spot is 1.3623 I will exercise $ € 1250000 x 117 x 1.36 1250000 x 177 110000 (@1.3623) 80746 €14705746 mefielding.com

Summary € Forward €14681054 Future €14617714 Options €14705746 mefielding.com

Part B Mhs Requirement 2.64bn US$ receipt in euros €14705746 Exchange at spot. 116= 1,705,866,536 Interest for 2 months 1.7bn x 2/12 x 10.8% 30705598 Shortfall 903427866 Borrow This assumes they have access to borrowings in host country. African Government may force them to borrow in dollars and transfer dollars to Mazabia mefielding.com

b) Using Fisher the annual decline in the currency is 8.4% 1.097 1.012 but the interest rate differential is 9.1% 1.108 1.022 so you are better to convert early to local currency mefielding.com

c) Calculation of future exchange rates 6 months 128 1.097 1.012 1/2 133.27 18 months 133.27 1.097 1.012 144.46 30 months 144.46 1.097 1.012 156.59 42 months 156.59 1.097 1.012 168.25 mefielding.com

Receipts $s 12% 133.27 1.5bn 144.46 10383497 9270980 156.59 9579156 7636445 168.25 8915305 6345738 Total 23253163 mefielding.com

c) With wide ranges of estimates of inflation the swap would be beneficial from a risk perspective Before entering into it you would need to do some research on the bank to ensure it had access to the required foreign currency And that if they have it they will give it to you Insurance may be adviseable mefielding.com