Currency Management

Question 1

Influences on FX Rates

Answer 1

Interest rates
Economic data and outlook
political environment

Question 2

Hedging requirements for planned business

Answer 2

Planned sales must be hedged by at least 75% for the next three months if the aggregated net exposure exceeds 100m

Question 3

Hedging requirements for project business

Answer 3

Net exposure + PoC must be hedged.

Question 4

Foreign currency risk calculation

Answer 4

Net foreign currency + planned sales and POs within next 4-12 months
+contingent foreign currency risk

Question 5

Net foreign currency position

Answer 5

Monetary balance sheet items
uncompleted / pending transactions
forecasted cash flows in planned business next 3 months

Question 6

Floating exchange rates

Answer 6

Are completely determined by market through supply and demand. EUR, USD, CHF

Question 7

Fixed exchange rate

Answer 7

Fixed rate the government sets and maintains. E.g. denkmark

Question 8

Spot Contracts

Answer 8

Traded at spot rates
Price of a currency quoted at forex market
Spot contract settled within two banking days

Question 9

Forward contracts

Answer 9

Used for hedging purposes. Forward rate is based on current spot rate plus/minus forward points.
Delivery in the future

Question 10

Forward rate =

Answer 10

Spot rate +/- forward points

Question 11

Hedging Instruments (4)

Answer 11

1) Forward contract: Lock the current exchange rate for a future delivery date
2) Netting: Offset inflows and outflows against each other
3) Currency clauses: Fix or limit FX Risk
4) Currency options. Gives the buyer the right, not obligation, to buy or sell a certain currency