Money Market Hedge(货币市场对冲)

Complexity
Volatility
Disclosure
Complexity 复杂性
Hedging strategy is typically misunderstood by all but the most knowledgeable insiders. Futures, forwards, options and swaps（互换） are the most commonly employed money market hedges. Further, financial engineering（金 融工程） and large investors continue to roll out "exotic" products that add to the confusion. Institutions often have difficulty simply selecting the right product for the right situation.
Example
Consider a small Canadian company that has exported goods to a U.S. customer and expects to receive US$50,000 in one year. The Canadian CEO views the current exchange rate of US$1 = C$1.10 as favorable, and would like to lock it in, since he thinks that the Canadian dollar may appreciate over the year ahead (which would result in fewer Canadian dollars for the U.S. dollar export proceeds when received in a year’s time). The Canadian company can borrow US$ at 1.75% for one year and can receive 2.5% per annum（年利息） for Canadian-dollar deposits（存款）.
Increase credibility
Carried out money market hedging business can be stabilized to provide customers with products in adverse price movements.
Disadvantages
The Bottom Line
The money market hedge is an effective alternative to mitigate（降低） currency risk, especially when other hedging tools like forwards and futures cannot be used. It is also relatively easy to set up, as one of its only requirements is to have bank accounts in a couple of different currencies. However, this hedging technique is unwieldy due to its number of steps; its effectiveness may also be impeded by logistical constraints, as well as actual interest rates that are very different from institutional rates. For these reasons, the money market hedge may be best suited for occasional or one-off transactions.
Disclosure 披露
Disclosure practices are further muddled by the idea that large investors are not likely to openly telegraph （透露）each transaction（交易）. Markets are highly competitive, and access to institutional trading patterns reduces their chances for profitability.
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As noted earlier, this hedging technique is also suitable for a small business that does not have access to the currency forward market.
3
The money market hedge is especially suitable for smaller amounts where someone requires a currency hedge but is unwilling to use futures or currency options.
货币市场套期保值
Money Market Hedge
L/O/G/O
Conห้องสมุดไป่ตู้ents
Definition Advantages & Disadvantages Example
Applications
The Bottom Line
Definition
A trader can reverse a future foreign currency payment or receivable by borrowing domestic currency now , converting （兑换）the currency into foreign currency at today’s exchange rate , and investing the proceeds（收益） in foreign money market instruments . The proceeds of the money market instruments upon maturity（到期） can be used to meet the foreign currency needs payable at the date.
Advantages
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Smooth operation
平稳经营
Enhance competitivenes s
增强竞争力
Increase credibility
增加信誉
Advantages
Smooth operation
When companies carry out money market hedge , businesses will not be adversely（不利地） affected by price fluctuations（波动）.
Volatility 波动性
Hedges are typically related to derivatives（衍生工具）, which derive their valuations from other assets. This added layer of valuation that must be adjusted according to the overall mechanics（整体机制） of the particular hedge makes the pricing of these strategies prone to wild fluctuations. Volatility（波动性） increases further as the contract approaches its execution date（执行日期）. At the extreme end, investors realize the fact that unexercised options expire（过期） worthless.
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Applications
1
The money market hedge can be used effectively for currencies where forward contracts are not readily available, such as exotic currencies or those that are not widely traded.
Example
1. 2. 3. The Canadian company borrows the present value of the U.S. dollar receivable = US$49,140.05= US$50,000 / (1.0175). The amount of US$49,104.15 is converted into Canadian dollars at the spot rate of 1.10, to get C$54,054.05= US$49,140.05*(C$1.10/US$1) The Canadian dollar amount is placed on deposit at 2.5%, so that the maturity amount (after one year) is= C$55,405.41 = C$54,054.05 x (1.025). When the export payment is received, the Canadian company uses it to repay the US dollar loan of US$50,000. Since it received C$55,405.41 for this US dollar amount, it effectively locked in a oneyear forward rate = C$55,405.41 / US$50,000 or US$1 = C$1.108108.
Enhance competitiveness
The procurement（采购） costs can be lower，and the quantity of sale will be increased. Therefor，the competitiveness of enterprises will be improved.
Thank You!
L/O/G/O