1. Mark Fielding-Pritchard
Asteroid Systems June 2008
Mark Fielding-Pritchard
mefielding.com

2. Asteroid Systems a) Receivable, due in 2 months, Swiss Francs
Therefore we’ll borrow Swiss Franc
At spot (1.6244) €1.5m = SFR
Libor is 2.17%, therefore we borrow at LIBOR + 20 (2.37%)
2.37% is annual so we borrow at 0.395% (2.37x 2/12)
Therefore borrow / = SFr
This will grow into SFr over 2 months
Exchange today at spot = €1.5m
Assume euros are put on deposit for 2 months ( x 2/12= 0.62%)
1.5m x = €
mefielding.com

3. Asteroid Systems b)
Money market hedge works well when you have a receipt because you can receive your money now
In reality you can sell the debt to a factor, discount is time and & default risk
Buying certificates of deposit reduce transaction fees
Not practical when you have liabilities as you have to buy currency and put on deposit- your business should develop better returns than bank interest
There can be significant counterpart risk in some countries
MMHs are usually fixed deposits so if something happens the hedge is irreversible
mefielding.com

4. Asteroid Systems c) Hedging reduces risk so reducing cost
Hedging reduces the cost of borrowing, the currency swap market is huge
Use of derivatives can ‘worry’ investors
Hedging stabilises cash flows which reduces risk
mefielding.com