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Treasury and Risk Management- Assignment

   

Added on  2021-04-21

9 Pages1788 Words35 Views
Running head: TREASURY AND RISK MANAGEMENTTreasury and Risk ManagementName of the Student:Name of the University:Authors Note:
Treasury and Risk Management- Assignment_1
TREASURY AND RISK MANAGEMENT1Table of ContentsQuestion 1: Identifying the reason for de-pegging of Franc and stating the hedging strategiesimplemented by Swiss exporters................................................................................................2Question 2:.................................................................................................................................4a) Calculating the dollar cash flow from each strategy and detecting their risk:.......................4b) Depicting the most optimal hedge for ABC:.........................................................................7Reference and Bibliography:......................................................................................................8
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TREASURY AND RISK MANAGEMENT2Question 1: Identifying the reason for de-pegging of Franc and stating the hedgingstrategies implemented by Swiss exportersThe main reason behind the unpegging of Swiss franc is due to the decisions made bySNB is controlling the valuation of franc, which was rising due to continuous buying of thecurrency. The franc was mainly pegged with Euro, where SNB increased the supply of franc,which was used in buying the euro and reducing the actual valuation of franc. The peggingwas conducted for reducing the franc value against other currencies, as exporters were havingtrouble selling their products internationally. The Swiss economy is mainly based onexporters, where rising valuation of Swiss franc was hammering progress of the economy.The SNB aimed in depreciating the Swiss franc by accumulating Euro and increasing theflow of franc in the currency market. Bessis (2015) stated that with relevant measurecountries can control their currency valuation, which might help in improving the total GDPvalue.Moreover, the main problems started, when Euro value stated to depreciate againstmajor currencies, which in turn declined value of franc, due to high accumulation of Eurocurrency by SNB. The value of Euro mainly depreciated by 10% to 12% against US dollar,which devalued franc in the currency market (The Economist 2018). In addition, motive ofthe SNB was fulfilled when euro stated to depreciate and they did not want any furtherdevaluation of their currency, which led to the de-pegging of Swiss Franc. Approximately480 billion of Euro currency was accumulated by SNB, which relevantly declined thevaluation of Swiss Franc. This increment in foreign currency reserve is directly increasing thechance of hyperinflation due to the increase in supply of domestic currency. On the otherhand, Chance and Brooks (2015) criticises that the control of currency was previouslyconducted by Asian countries, which resulted in the occurrence of Asian financial crisis.
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