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International Banking and Payment Systems How to Move Money, Get Paid, and Manage Currency Risk in the Global Marketplace Matthew Kuchta  Fifth Third Bank Melissa Sullivan  Fifth Third Bank Mark Sundahl  Cleveland State University    Yormick & Associates
[object Object],Risk Management FX Hedge Contracts Predictable Currency Rates ,[object Object],[object Object],[object Object],[object Object],[object Object]
Overview of Conventional FX Hedging Tools Instrument:  Forward Outright Time Options FX Options (Puts & Calls) Description Customer locks into a fixed rate of exchange for a set amount of foreign currency at a pre-determined value date Hybrid of the forward outright, it allows for a value date range as opposed to one specific value date Option buyer owns the right but not  the obligation to sell or buy currency at a fixed strike price in the future Advantages ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Disadvantages Loss of any participation in advantageous currency fluctuation Slightly more expensive than the forward outright Upfront premiums
Overview of Structured FX Hedging Tools Instrument  Collar  (Zero-Cost) Participating Forward (2 to 1) Assumption Customer is short foreign currency Customer is short foreign currency Description Creates a protective hedge rate range Customer buys a call and sells a put with strike structures so that there is no premium outlay required Creates a protective hedge rate range Customer buys a call and sells a put for half the amount with strikes structured so that there is no premium outlay required Advantages ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Disadvantages Customer loses participation in advantageous market movement beyond the call strike Customer loses participation in advantageous market movement beyond call strike (but only on half of the hedged position)

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Currency Risk May 28 2010

  • 1. International Banking and Payment Systems How to Move Money, Get Paid, and Manage Currency Risk in the Global Marketplace Matthew Kuchta Fifth Third Bank Melissa Sullivan Fifth Third Bank Mark Sundahl Cleveland State University Yormick & Associates
  • 2.
  • 3.
  • 4.