1. Functions for the Market
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Bloomberg ® 06/03/2016 17:17:17 1
Market Sees Saudi Riyal Devaluation Despite Economic Realities
By Christopher Weiss
Expectations that Saudi Arabia will devalue the riyal remain near their highest in more than a dozen
years even after the central bank pledged to maintain its 3.75-per-dollar peg.
Economic realities suggest speculation that the Kingdom will follow China, Vietnam and Kazakhstan
down the debasement path are overblown, given the Saudi economy's dependence on imports that
would become pricier with a devalued currency.
Use Bloomberg functions to analyze the currency and the country's trade imbalance.
Given the dollar peg, market sentiment on
the riyal must be monitored with trading
on forward contracts and cross-currency
basis spreads.
Type "riyal' in the command line
and select Saudi Riyal Spot' from
autocomplete. Then type "forward" and
select 'FX Forward Calculator'. The
shortcut is { SAR Curncy FRD <GO> }.
The screen displays the forward rates
and/or points above the peg for a variety
of maturities. To see a chart of the 12-
month forward, right click on the '1Y'
row, select 'Historical Price Graph’ and
set the start date's year back to 2000.
The shortcut is { SAR12M Curncy GP
9/2/2000 <GO> }.
Note that from mid-2011 to mid-2014, the forward price was near the 3.75 peg; depending on user
settings, the line may show the price or points above or below the official rate. It shot up as demand
rose to sell the riyal on expectations that it would weaken in the next year. It fell again in May and
June and then skyrocketed starting in July, hitting 3.79 on Aug. 24, the highest since March 2003.
It fell after a central bank official said the next day that the peg would be maintained and then
rebounded again.
Next, analyze the price to swap quarterly,
floating-rate riyal interest payments
into dollars for five years, known as the
five-year cross-currency basis spread.
Given that forwards are mostly limited
to tenors of a year or less, this spread is
a good indicator for longer-term market
sentiment.
Type "sar basis" into the command line
and pick 'SAR-USD Basis Swap 5YR'
from autocomplete. Click 'Line Chart'
from the menu and set the date back to
11/29/2009, as far back as the data goes.
The shortcut is { SRUSSW5 Curncy GP
11/29/2009 <GO> }.
The spread remains near historic highs,
reflecting elevated demand for dollars

2. Functions for the Market
This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP (“BFLP”) and its subsidiaries
in all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the (“BFLP Countries”). BFLP is a wholly-owned subsidiary of Bloomberg LP (“BLP”). BLP provides BFLP with all the global marketing
and operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,
and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
Bloomberg ® 06/03/2016 17:17:17 2
over riyals, though it too fell a bit after the
central bank official's comment.
A riyal devaluation would counteract falling revenue from a drop in the price of oil, Saudi Arabia’s
revenue source, by increasing the number of riyals earned for every barrel of crude, which trades in
dollars. Given that the Saudi economy relies on imports, however, inflation likely would counteract
any upside.
To analyze the country's imports, type "trade flow" in the command line, select that function from
autocomplete, type "Saudi Arabia" in the upper-left amber field and hit <GO> or use the { ECTR SA
<GO> } shortcut. Select ‘Imports’ from the ‘Order by’ dropdown menu.
For details on Saudi Arabia, place the
cursor over the gray box next to Saudi
Arabia to see total export and import data
for 2014.
The country had exports of $357 billion
and imports of $170 billion in 2014. The
table on the right shows that about a
quarter of the imports came from China
and the U.S. Any weakening in the official
rate would drive up local prices for these
imports because China also tethers its
currency, the yuan, to the dollar.
Next, view the composition of the Kingdom’s imports. Type "economic statistics" in the command
line, select that function from autocomplete and enter "Saudia Arabia" in the country field or use the
{ ECST SA <GO> } shortcut.
Click the plus sign next to ‘Intl Trade
& BoP’ in the left column, then do the
same to expand the ‘International Trade
Balance’ category. Then click 'Imports'
and the 'By Product' tab.
Saudi Arabia's biggest imports are
machinery, transport equipment, base
metals, chemicals, food and agricultural
products and various consumer goods.
Since the Kingdom cannot viably localize production of these imports any time soon, weakening the
riyal would lead directly to higher prices for Saudi citizens, which would be politically unpopular.
For more information: Saudi Arabia Breaks Gulf Silence on Peg Seen Here to Stay: { NSN
NTOO2J6K50Y1<GO> } Top Saudi Riyal News Stories: { TOP SAR <GO> } Top Trade News Stories:
{ TOP TRADE <GO> } FX Information Portal: { FXIP <GO> } Saudi Riyal Description Page { SAR
Curncy DES <GO> }; click 'FX Regime Details' for peg information.
To contact the author of this { FFM<GO> } article:
Christopher Weiss, foreign exchange specialist: +1-212-617-0620 or cweiss29@bloomberg.net

3. Functions for the Market
This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP (“BFLP”) and its subsidiaries
in all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the (“BFLP Countries”). BFLP is a wholly-owned subsidiary of Bloomberg LP (“BLP”). BLP provides BFLP with all the global marketing
and operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,
and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
Bloomberg ® 06/03/2016 17:17:17 3
Functions for the Market stories are reported by Bloomberg LP sales-support, product-development,
programing and other employees and then edited by the News Department. To suggest ideas or
provide feedback, contact ffmeditors@bloomberg.net or the editor responsible for this story: Phil
Kuntz at pkuntz1@bloomberg.net or +1-212-617-5486.