logo

Treasury Risk Management Assignment

   

Added on  2021-04-17

12 Pages2552 Words30 Views
Running head: TREASURY AND RISK MANAGEMENTTreasury and Risk ManagementName of the Student:Name of the University:Authors Note:

TREASURY AND RISK MANAGEMENT1Table of ContentsAnswer to question 1: Affirming the hedge used by exporters, while depicting the mainreason behind de-pegging of Franc............................................................................................2Question 2:.................................................................................................................................4a.1) Unhedged strategy for the payment of ABC:......................................................................4a.2) Forward hedge strategy for the payment of ABC:..............................................................6a.3) Money Market hedge strategy for the payment of ABC:....................................................7a.4) Option hedge strategy for the payment of ABC:................................................................9b) Depicting the most optimal hedge for ABC:.......................................................................11Reference and Bibliography:....................................................................................................13

TREASURY AND RISK MANAGEMENT2Answer to question 1: Affirming the hedge used by exporters, while depicting the mainreason behind de-pegging of FrancDuring 2011, Switzerland National Bank took a relative measure to reduce thevaluation of Swiss Franc, due to the continuous increase in its currency valuation incomparison to other countries. In addition,the Swiss Franc was increasing in value incomparison to USD, GBP and Euro, which was drastically hampering the actual economy ofthe country. This is due to the exports that is conducted by Switzerland all over the world,which got hit due to the higher valuation of the currency. The exporters were not able tocompete in the international market, which reduce their actual income. The export business ofSwitzerland mainly comprises 70% of its total GDP, which was one of the drastic conditionpresented to Switzerland National Bank (Reuters.com 2018).Therefore, in view of decliningrevenues and GDP the Switzerland National Bank started to the value of Peggy their SwissFranc to reduce this valuation in the international market. this paging system relativelyallowed Swiss National Bank to reduce the actual valuation of the currency, while boostingthe economy.Therefore, Switzerland National Bank started to accumulate Euro in their reserve,which tampered with the overall Swiss Franc and helped the bank to control its valuation.The more Euro was bought by Switzerland National Bank, the more Swiss Franc was printedand distributed in the market. This relatively decrease the overall valuation of Swiss Franc inthe international market and help the bank to boost exports in Swiss Zealand.This relativelyincreased the accumulation of Swiss Franc within the Switzerland National Bank, whichdrastically helped in improving the economic conditions of the country (Admiralmarkets.com2018).The measure used by Swiss National Bank to control its currency was discontinued

TREASURY AND RISK MANAGEMENT3during 2015, which led to a drastic change in its currency valuation and stock market. The de-pegging was relatively conductor due to certain factors which are depicted below,Protest given from Switzerland citizens regarding the accumulation of Euro currency:In Switzerland they were relevant protest against the measure that was used by SwissNational bank for controlling their currency, which actually inflated the Swiss economy. themeasure used by the bank was to print more Swiss Franc to purchase Euro, which increasedcirculation of the currency in the market, which relatively depicted an alarming rate for thecitizens of Switzerland.The citizens mainly feared the rise of inflation within the economy,due to the printing of Swiss Franc for buying Euro currency. Swiss National Bankaccumulated 480 billion of foreign reserves, which comprise only of Euro (Bbc.com 2018).This extreme accumulation of the currency is relatively depicting the problems, which mightin Swiss Franc.Therefore, the continuous pressure from citizens Swiss National Bank be thedecision of de-pegging the Swiss Franc and to start selling Euro in the currency market.Reduction in the currency value of Euro:The second main reason behind the debugging of Swiss Franc was the reduction invalue of Euro, which was being conducted, due to the measures taken by European NationalBank. The European National Bank mainly injected capital within the economy to increaseinflation rate with the process of monetary easing. This process relatively increased thecirculation of Euro within the Euro-Zone, which declined its overall valuation. Thiscontinuous devaluation of euro, due to measures taken by the European National Bankdirectly affected the actual valuation of Swiss Franc. The Swiss National Bank intended tokeep a relevant value for the Swiss Franc, which was drastically reduced due to thedepreciating Euro.The reason behind pegging was happening due to the excessive exposureof Swiss National Bank to the Euro currency.Therefore, the continuation of pegging measure

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Treasury and Risk Management
|14
|2539
|287

Treasury and Risk Management Assignment
|9
|1788
|60

Finance: De-pegging of Franc and Hedging Strategies
|9
|1617
|214

Treasury and Risk Management- Assignment
|9
|1788
|35

Treasury and Risk Management - Doc
|8
|1692
|20

Swiss National bank Assignment Analysis
|6
|1696
|15