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Treasury and Risk Management Assignment

   

Added on  2021-04-24

9 Pages1788 Words60 Views
Running head: TREASURY AND RISK MANAGEMENTTreasury and Risk ManagementName of the Student:Name of the University:Authors Note:

TREASURY AND RISK MANAGEMENT1Table of ContentsQuestion 1: Discussing the reason for SNB de-pegging of Franc, while evaluating thehedging strategies implemented by Swiss exporters..................................................................2Question 2:.................................................................................................................................4a) Identifying the risk of each strategy and estimating the dollar cash flows it will receivebecause of using each strategy:..................................................................................................4b) Explaining the hedge that is optimal for ABC:......................................................................7Reference and Bibliography:......................................................................................................8

TREASURY AND RISK MANAGEMENT2Question 1: Discussing the reason for SNB de-pegging of Franc, while evaluating thehedging strategies implemented by Swiss exportersOn January 2011, Swiss National Bankmade a decision, which changed the value offranc and is considered one of the dark days for stock market of the country. This de-peggingdecision made by Swiss National Bankwas based on certain assumptions and actions thatwas taken by different bank all around the world. The event resulted in major devaluation ofSwiss Franc, which hampered their currency valuation in comparisons to other countries(Bishop 2015). The reason behind Swiss National Bankconducting the de-pegging aredepicted as follows.Accumulation of high Euro and foreign currency reserve:During the period of pegging conducted by Swiss National Bank, it mainlyaccumulated high foreign reserve and Euro for reducing the rising valuation of Swiss Franc.In addition, the increasing accumulation of foreign currency was maintained by raising thesupply of Swiss Franc by Swiss National Bank. The high demand of Swiss Franc mainlyincreased valuation of the currency, while hampering their international trade. This risingsupply of Swiss Franc increased the chance of hyperinflation within the country, as evaluatedby business and analyst. In addition, Swiss National Bank accumulated 480 billion worth offoreign reserve, which comprises 70% of the GDP (Admiral Markets 2018). This highaccumulation of foreign reserve mainly reduced the actual valuation of Swiss Franc againstother currencies. In this context, Skinner (2016) stated that Central Bank of countries use theforeign reserve to maintain the valuation of their currency, which helps in reducing thenegative impact of volatile currency market.Devaluation of Euro against other countries:

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