Presentation on various risk management strategies using forex derivatives.

1. Foreign Exchange Market & Derivatives Risk = Grammar of Business Finance = Language of Business

8. Stop loss order to maximize profit & minimization of loss Book the Contract Cancel the contract Demand – Supply Curve

13. 2. Interest rate swap contd… Company Y Company X 7.30% Fixed Rate 6 LIBOR Floating Rate 6 LIBOR Floating Rate 7.25% Fixed Rate Use $ 100 Mio Use $ 100 Mio 6 LIBOR + 0.50% Floating Rate $100 MiO for 5 Years $100 MiO for 5 Years 7.0% 0.05% Profit Citibank Floating Market Fixed Market

16. 3. Currency Swap contd… T 0 T 1 T 2 T 0 T 1 T 2 T 3 T 4 T 5 T 3 T 4 T 5 X Y Borrow $ 100 MiO @ 6% Borrow 10000 MiO Yen@ 6% Give It to X Give It to Y Y will give $100 MiO to its US subsidiary X will give 10000 MiO Yen to its Japenese Subsidiary $100 MiO 10000 MiO Yen Y will pay Interest in $ @ 6% X will pay interest in Yen @ 4% Y will pay Interest in $ @ 6% X will pay interest in Yen @ 4% Y will pay Interest in $ @ 6% X will pay interest in Yen @ 4% Y will pay Interest in $ @ 6% X will pay interest in Yen @ 4%

18. 4. CIRCUS Swap contd… T 0 $150 MiO T 0 150 MiO € T 1 -T 5 Int. @ 4% T 1 -T 5 6 LIBOR + 0.10% T 0 $150 MiO 6 LIBOR + 0.10% T 0 100 MiO € T 1 -T 5 Int. @ 4% Co. X Co. Y Floating Market Fixed Market

19. T 5 100 MiO € T 5 $150 MiO T 5 100 MiO € T 5 $150 MiO Co. X Co. Y Floating Market Fixed Market