Currency exposures and derivatives

Cover
Contents
Chapter 1: Managing Currency Exposures
	1.1 Introduction
	1.2 Types of Exposures
	1.2.1 Transaction Exposures
		1.2.2 Translation Exposures
		1.2.3 Economic Exposures
	1.3 Hedging Exposures: Regulatory Issues
	1.4 Short-term and Long-term Exposures
Chapter 2: Exchange Rate Movements–I USD : INR Exchange Rate
	2.1 Dollar: Rupee and Cross Currency Rates
		2.1.1 IMF Classifications
	2.2 Managing Exchange Rates
		2.2.1 Why Exchange Rates Move?
		2.2.2 Why Manage?
		2.2.3 The Exchange Rate Index used in India
		2.2.4 How does a Central Bank Manage the Exchange Rate?
	2.3 The Rupee Dollar Exchange Rate: A Brief History
		2.3.1 March 1993 Onwards
		2.3.2 A Closer Look
		2.3.3 Sources of Demand and Supply
		2.3.4 India’s Balance of Payments: The Actual Numbers
		2.3.5 Other Influences
	2.4 Forecasting the USD : INR Rate
		2.4.1 Merchandise Trade
		2.4.2 Invisibles
		2.4.3 Capital Account: Equity Flows
		2.4.4 External Debt
		2.4.5 Short-term Capital Flows: Leads and Lags
		2.4.6 A General Comment
	2.5 Balance of Payments Crises
	Annexure 2.1 Balance of Payments: Core Concepts
	Annexure 2.2 Some Balance of Payments Crises
		A2.2.1 The Mexican BoP Crisis
		A2.2.2 The East Asian Crisis–1997/98
Chapter 3: Exchange Rate Movements–II Convertible Currencies
	3.1 Introduction
	3.2 Convertible Currency Movements
		3.2.1 Past Experience
		3.2.2 Two Approaches
	3.3 Economic Fundamentals
		3.3.1 Media Commentary
		3.3.2 Media Commentary: A Formal Study
	3.4 Technical Analysis or Charting
		3.4.1 The Basic Tenets
		3.4.2 Tools of Technical Analysis
		3.4.3 Charting: A Study of the London Market
		3.4.4 Other Technical Models: Fibonacci Numbers and Elliott Wave Theory
		3.4.5 Some General Comments
	3.5 Market Psychology and Behavioral Finance
	3.6 Efficient Markets
		3.6.1 Market Rates: Some Ground Realities
	3.7 The Author’s Views
		References
Chapter 4: Hedging, Trading and Risk Management Regulatory and Governance Issues
	4.1 Introduction
	4.2 Market Risk
	4.3 Hedging
		4.3.1 The Regulatory Framework
		4.3.2 Extant Regulations
		4.3.3 Some Issues
			a. Currency of hedge
			b. Cost reduction structures
			c. Rupee : Dollar options
			d. Structure products
			e. Price fixing and offset hedges
			f. General
	4.4 Trading or Speculation
		4.4.1 Covered Calls and Puts
	4.5 Issues in Risk Management Policies
		4.5.1 Objectives of Risk Management
			a. Best rates
			b. Insurance
			c. Budgeted rates
			d. Gross or net
			e. Dollar or non Dollar?
		4.5.2 Spectrum of Risk Management Strategies
		4.5.3 Corporate Treasury Policy
Chapter 5: Risk Management Policies
	5.1 Policy Framework
	5.2 Short-term and Long-term Exposures
	5.3 Selective Hedging: Short-term Exposures
		5.3.1 Risk Appreciation and Identification
		5.3.2 Risk Measurement
		5.3.3 Risk Control
		5.3.4 Performance Evaluation and Stop Loss Benchmark
		5.3.5 Economic Exposures
		5.3.6 Maturity Gaps
		5.3.7 Instruments to be Used
		5.3.8 Cancellation and Re-booking of Hedges
	5.4 Active Speculation or Trading in Currency Markets
		5.4.1 Accounting Standard
		5.4.2 Exchange Regulations
		5.4.3 Speculation and Transaction Costs
	5.5 Hedging Instruments: Option or Forwards?
	5.6 Medium-term Exposures
	5.7 Some More on Economic Exposures
	5.8 Medium-term Exposures: Revenue Account
		5.8.1 The Important Issues Involved
			a. Currency rates for costing
			b. Managing contingent exposures
			c. Managing contractual exposures
		5.8.2 Balance Sheet Transactions to Hedge Revenue Exposures
	5.9 Medium-term Loans: Derivatives as Hedges
	5.10 Long-term Exposures: Delta Hedging
		5.10.1 Some Ground Rules
	5.11 The Psychology of the Hedger
Chapter 6: Use and Misuse of Derivatives
	6.1 Introduction
		6.1.1 The Roots of Complexity
		6.1.2 Traders, Guns and Money
	6.2 Some Cases in India
		6.2.1 Hedging in Currency of Choice
		6.2.2 Writing Option to Earn Fees
		6.2.3 Swapping INR Debt (or Coupon) into Foreign Currency
		6.2.4 Reverse Barriers
		6.2.5 Range Accruals
		6.2.6 More Complex and/or Riskier Structures
			6.2.6.1 The structure itself
				6.2.6.2 Leveraged payoffs
				6.2.6.3 Wording
		6.2.7 Some General Comments
	6.3 Some Cases from Global Markets
		6.3.1 Complex Derivatives: Procter and Gamble (April 1994)
			6.3.1.1 Risk management lesson
		6.3.2 Orange County, California (1994)
			6.3.2.1 Risk management lessons
		6.3.3 Ashanti Gold Mines
			6.3.3.1 The lessons
		6.3.4 Newcrest Mining (2002)
			6.3.4.1 Lessons
		6.3.5 Some Other Cases
			6.3.5.1 Risk management lessons
		6.3.6 Derivatives in Court Cases
Chapter 7: Accounting of Foreign Exchange Transactions AS 11, AS 16 and AS 30
	7.1 Introduction
	7.2 AS 11: The Effects of Changes in Foreign Exchange Rates
		7.2.1 Scope and Important Provisions
		7.2.2 Recent Change
		7.2.3 Some Other Issues
		7.2.4 One Major Issue
	7.3 AS 16: Borrowing Costs
	7.4 AS 30: Financial Instruments: Recognition and Measurement
		7.4.1 Definitions
		7.4.2 Hedging Instruments
			7.4.2.1 Written options
			7.4.2.2 Forward margin and time value of options
		7.4.3 Hedged Items
		7.4.4 Hedge Accounting
	7.5 Hedge Effectiveness
		7.5.1 Hedge Effectiveness in the Absence of Basis Risk
		7.5.2 Hedge Effectiveness: Basis Risk
	7.6 Internal Controls
	7.7 Other Issues
Index