滋维博迪投资学课件专题课件.ppt

Futures can be used to hedge specific sources of risk.
Hedging instruments include:
Foreign exchange futures
Stock index futures
Interest rate futures
Swaps
Commodity futures
Futures
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滋维博迪投资学课件
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Foreign Exchange Futures
Foreign exchange risk: You may get more or less home currency than you expected from a foreign currency denominated transaction.
Foreign currency futures are traded on the CME and the London International Futures Exchange.
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滋维博迪投资学课件
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Figure Foreign Exchange Futures
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滋维博迪投资学课件
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Interest rate parity theorem
Developed using the US Dollar and British Pound
where
F0 is today’s forward rate
E0 is the current spot rate
Pricing on Foreign Exchange Futures
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滋维博迪投资学课件
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Text Pricing Example
rus = 4% ruk = 5% E0 = $ per pound
T = 1 yr
If the futures price varies from $ per pound, covered interest arbitrage is possible.
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滋维博迪投资学课件
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Direct Versus Indirect Quotes
Direct exchange rate quote:
The exchange rate is expressed as dollars per unit of foreign currency
Indirect exchange rate quote:
The exchange rate is expressed as foreign currency units per dollar
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滋维博迪投资学课件
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Hedging Foreign Exchange Risk
A US exporter wants to protect against a decline in profit that would result from depreciation of the pound. The current futures price is $2/£1. Suppose FT = $?
The exporter anticipates a profit loss of $200,000 if the pound declines by $.10
Short or sell pounds for future delivery to avoid the exposure.
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滋维博迪投资学课件
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Hedge Ratio for Foreign Exchange Example
Hedge Ratio in pounds
$200,000 per $.10 change in the pound/dollar exchange rate
$.10 profit per pound delivered per $.10 in exchange rate
= 2,000,000 pounds to be delivered
Hedge Ratio in contracts
Each contract is for 62,500 pounds or $6,250 per a $.10 change
$200,000 / $6,250 = 32 contracts
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滋维博迪投资学课件
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Figure Profits as a Function of the Exchange Rate
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滋维博迪投资学课件
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Available on both domestic and in