Case 3.1: Foreign Exchange Trading At Baldwin Enterprise

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Presentation transcript:

Case 3.1: Foreign Exchange Trading At Baldwin Enterprise Bjarne Berg Bong-Keun Jeong

Background A manufacturing company operated in several countries Maintain cash assets: US dollar (USD), Euro (EUR), Pound (GBP), Hong Kong dollar (HKD), and Japanese yen (JPY) To meet the different cash flow requirements, Baldwin often moves funds one place to another through the foreign exchange (FX) market

Background The FX market buy and sell different currencies (same as stock market) Bid price: the price that market is willing to buy a particular currency Ask price: the price that market is willing to sell Ask price > bid price (transaction profit/cost)

Current FX Rates at Baldwin USD EUR GBP HKD JPY 1 1.01864 0.6409 7.7985 118.55 0.9724 0.6295 7.6552 116.41 1.5593 1.5581 12.154 184.97 0.12812 0.1304 0.0821 15.1005 0.00843 0.00856 0.0054 0.0658 One GBP (pound)  1 * 1.5593 USD (US dollar)  1 * 1.5593 * 0.6409 = 0.999355 (pound)

Transaction Cost USD EUR GBP HKD JPY 1.000000 0.009474 0.000645 USD EUR GBP HKD JPY 1.000000 0.009474 0.000645 0.000856 0.000623 0.019176 0.001762 0.003530 0.002157 0.001162 0.006387

Problem Statement Objective: Design a currency trading plan that minimize transaction costs Requirements Current holding Target holding USD 2 million 250,000 EUR 5 million 8 million GBP 1 million Equivalent of at least 250,000 US HKD 3 million JPY 30 million 54 million