1. “International Finance and Payments” Lecture XII “Using of Derivatives in International Financing” Lect. Cristian PĂUN Email: cpaun@ase.ro cpaun@ase.rocpaun@ase.ro URL: http://www.finint.ase.ro Academy of Economic Studies Faculty of International Business and Economics

2. International Derivatives Market

3. Interest rate derivatives – International Market Derivative 1999200020012002 FRA’s6,7556,4237,7379,146 Swaps43,93648,76858,89768,274 Options9,3809,47610,93312,575 TOTAL60,09164,66877,56889,995

4. Currency derivatives – International Market Derivative1999200020012002 Forward and futures9,59310,13411,17611,298 Swaps2,4443,1943,1023,350 Options2,3072,3382,4703,427 TOTAL14,34415,66616,74818,075

5. Equity derivatives Derivative1999200020012002 Forward and swap283335320386 Options1,5271,5551,5611,828 TOTAL1,8091,8911,8812,214 Real assets (goods) derivatives Instrument1999200020012002 Gold243218231279 Others 305445337444 Forward and swap163248328388 Options143196279367 TOTAL548662598777

6. Forward contract Long Short Profit Loss Spot Forward rate

7. Forward contracts and credit risk management PositionRiskPosition Creditor currency interest Short on forward contracts Debtor currency interest Long on forward contracts Forward contract characteristics: it is not a standardized contract forward price is negotiable forward contracts are settled only at the maturity there is not a secondary market you have no possibility to give the contract to another beneficiary.

8. Futures contracts Long futures Short futures Profit Loss Futures at the Settlement date Initial Futures

9. Credit Risk Management using Futures Contracts PositionRiskPosition Creditor currency interest Short on futures contracts Debtor currency interest Long on futures contracts

10. CALL Options Loss Profit Loss Long CALL Short CALL PE + Premium

11. Put Options Loss Profit Loss Long PUT Short PUT PE - Premium

12. Credit Risk Management using Options Contracts PositionRiskPosition Creditor currency interest Long PUT on options contracts Debtor currency interest Long CALL on options contracts Note: Short positions are not desirable for a proper credit risk management

13. Swap Contracts Bank A A Credit Bank B B Credit Swap Bank Swap contract LIBOR Fixed interest rate

14. Interest rate synthetic instruments / cap a. « cap »: Bank A ABank B Premium Cap LIBOR Credit i 1 = i 1 + premium – dif.i

15. Synthetic instruments / floor b. « floor »: A Bank ABank B Premium cap LIBOR Credit i 1 = i 1 - premium + dif.i

16. Synthetic instruments / collar c. « collar »: Bank A A Bank B LIBOR TBR Credit Bank C Premium Collar