the maverick treasurer magazine - jan 2016

THE MAVERICK TREASURER

The Maverick Treasurer 1

By: - Rahul Magan

Corporate Treasurer, EXL Service Holdings, Inc. (NASDAQ Listed)

Founder of the Brand, “Foreign Exchange Maverick Thinkers”

91-9899242978, Skype Connect ~Rahul5327, Twitter @ Rahulmagan8




Welcome Mates!!

Welcome to the January edition of “The Maverick Treasurer”. A Magazine which talks about

Treasury & Foreign Exchange Risk Management, Derivatives & Currency Trading, Interest Rates

Derivatives, Fixed Income Markets (Debt Markets, Money Markets, Capital Markets), Valuation of

Derivatives Instruments, Central Bank Policy Actions, Hedge Accounting (US GaaP, IFRS, IAS, Indian

GaaP, IND-AS), Guidance towards International Accounting Standards, Trading tips pertaining to

variety of assets classes covering both Onshore and Offshore Treasury Markets which in turn would

sink with Proprietary Trading Desk of “ Foreign Exchange Maverick Thinkers”

Editorial Desk of “ The Maverick Treasurer “ would always keep looking at those issues which are

very sensitive in Foreign Exchange Markets and in turn would be having Financial Impact in

Financials ( Balance Sheet , Profit & Loss Account , Cash Flow Statements ) of both Exporters and

Importers.

Editorial Desk of the Magazine would always try to present unseen faces of the Foreign Exchange

Markets and update Chief Executive Officers, Chief Financial Officers, Corporate Treasurers, Private

Sector Bankers, Public Sector Bankers, Financial Controllers, Officers of Banks Oversight Functions,

and Foreign Exchange Traders via Global presence of our Brand.

Well in the maiden issue “The Maverick Treasurers “ Editorial Desk would be covering important

aspects of USD , USDX ( Dollar Index ), AUD ( Australian Dollar ) , NZD ( New Zealand Dollar ) , CAD

( Canadian Dollar ) , Euro , GBP , JPY ( Japanese Yen). Editorial Desk would be covering top 8

currencies of the world as majority of the Exporters as well as Importers are having sufficient

exposures in aforesaid currencies.

Well at the same time Magazine is also launching a very unique section known as “Financial

Derivatives & Analytics “ which would covering valuation of Derivatives Instruments for both

Exporters as well as Importers. Since it’s a maiden issue henceforth Editorial Desk would be covering

Exporters Perspective much however in subsequent issues Importers Instruments would be there.

Well “Financial Analytics & Derivatives” Section would be covering Valuation of Range Forwards

(Exporters) from 1 Y till 5 Y, Valuation of Buy Put Contracts 1 Y till 5 Y. Well valuations are done

using OTMF (Out of the Money Forwards) which is 1 Implied Volatility away from ATMF (At the

Money Forwards). The section of Financial Derivatives & Analytics would focus on Exporters hedging

program via LTFX (Long Term Forwards Contracts) vs Cost Reduction Structures which is Range

Forwards Contracts.

Well valuation of “Financial Derivatives & Analytics “done using Modified Black Scholes Model

having respective parameters using Thomson Reuters. Over the period of the time Editorial Desk

would be covering Range Forwards (Importers), Seagull (Exporters), Seagull (Importers),

Participatory Forwards, Straddle , Strangle , Call Spread, Put Spread and respective Derivatives

Strategies using variety of models.

Best,

Rahul Magan

Editor, The Maverick Treasurer

91-9899242978, Skype Connect~ Rahul5327, Twitter @ Rahulmagan8



Circulation of the Magazine

Well Magazine is intended to circulate at following places across the Globe keeping following

prices:-

1. India – Rs 100

2. Australia – AUD 10

3. New Zealand – NZD 10

4. Singapore SGD 10

5. Canada – CAD 10

6. United States – USD 10

7. London – GBP 15

8. European Union – Euro 15 ##

9. Tokyo – JPY 1200

10. Hong Kong – HKD 35

## Prices would vary from Country to Country in European Union like London, Luxembourg,

Frankfurt, Germany, Munich, France, Denmark, Sweden, Portugal, Italy, Ireland, Greece,

Scotland and respective countries of European Union.



About the Brand “Foreign Exchange Maverick Thinkers “

Well the Brand “Foreign Exchange Maverick Thinkers “founded 5 Years ago with the

purpose of educating folks across the Globe covering variety of topics in markets.

With the same intent our Brand now available on all Electronic Platforms like You Tube

Channel, Daily Motion Channel, What’s UP APP Derivatives Groups, Telegram

Derivatives Groups , LinkedIn, LinkedIn Academies, Twitter Academies, Skype Foreign

Exchange Groups, Google Groups ~”Foreign Exchange Maverick Thinkers “, Google Blog

~” Maverick Treasurers Blog “

You Tube Channel:- Well You Tube channel - “Foreign Exchange Maverick

Thinkers “ covers 100 Technical videos on Foreign Exchange Risk Management, Treasury Risk Management, Onshore & Onshore Treasury Markets (Singapore, NY, London, Luxembourg, Frankfurt, Australia, Japan, Philippines, Dubai), Interest Rate Derivatives like Interest Rate Swaps, Credit Swaps, Total Return Swaps, Credit Default Swaps, Fixed Income Markets (Money Markets, Debt Markets, Capital Markets), International Accounting Standards (IFRS, US GaaP, International Accounting Standards, IND-AS, Indian GaaP), Corporate Finance , Strategic Finance , Fair Valuation , Business Valuation , Investment Banking and respective topics.

You Tube Channel

Daily Motion Channel

Whats UP Derivatives

Groups

Telegram Groups

LinkedIn Academies

Twitter Academies

Skype Academies

Google Group

Google Blog



Daily Motion Channel: - Well on the lines of You Tube Channel “Foreign

Exchange Maverick Thinkers “having my own Channel on largest video site of the world which is Daily Motion where by covering all the 100 Technical videos from Foreign Exchange Risk Management till Investment Banking.

What’s UP APP Derivatives Groups:- Running 4 Derivatives Groups ~ " Maverick Traders " on What’s UP APP having 400 members where by covering (Treasury Risk Management , Derivatives Risk Management , Currency Trading , Foreign Exchange Derivatives , Commodities Trading , Hedge Accounting )

Telegram Derivatives Groups:- Well on the lines of What’s UP APP Derivatives Groups having my own Derivatives Groups ~ “Maverick Traders “ on Telegram where by covering International Traders across the Globe.

LinkedIn & LinkedIn Academies :- Having LinkedIn Networking of 70 Million LinkedIn Connects across the Globe which covers Corporate Treasurers, CFO, CEO , Bankers , Corporate Finance Professionals , Finance Controllers , Board Members , Information Technology Experts , PHD’s , Management Graduates+++++++++

Twitter Academies: - Having Education Academies on Twitter where by sharing thoughts covering variety of topics from Foreign Exchange, Treasury till International Economies with all Global members.

Skype Foreign Exchange Groups: - Having Education Academies on Skype where by covering variety of topics from Foreign Exchange, Treasury till International Economies with all Global members.

Google Groups ~” Foreign Exchange Maverick Thinkers “:- Having Google Group which is further attached with Digital Library of having Foreign Author Books, Financial Modelling Excel based Models , Cash Flow Modelling Models , Risk based Models, Accounting Guides , RBI Master Circulars, CFA Books and respective others. Well as of now Google Group is having more than 200 members spreading across the Globe.

Google Blog “Maverick Treasurers Blog: - Well “Foreign Exchange Maverick Thinkers” is having its own Google Blog where by the purpose is to link with members across the Globe. As of now Google Group is covering all the topics from Foreign Exchange till Business Valuation. Group is open to all the members across the Globe.



The Maverick Treasurer – Table of Contents

Particulars Page No

Global Economic View 7

Valuation of Currencies Perspective of AUD ( Australian Dollar ) 8 Valuation of Australian Dollar ~ LTFX vs Options Derivatives 9 Perspective of NZD ( New Zealand Dollar ) 10 Valuation of New Zealand Dollar ~ LTFX vs Options Derivatives 11 Perspective of CAD ( Canadian Dollar ) 12 Valuation of Canadian Dollar ~ LTFX vs Options Derivatives 13 Perspective of Euro ( Euro as a Currency ) 14 Valuation of Euro ~ LTFX vs Options Derivatives 15 Perspective of GBP ( GBP as a Currency ) 16 Valuation of GBP ~ LTFX vs Options Derivatives 17 Perspective of JPY ( Japanese Yen ) 18 Valuation of Japanese Yen ~ LTFX vs Options Derivatives 19 All Currencies ~ Comparison of Implied Volatilities 20 Forecast of Currencies ~Year 2016 21 View of Editorial Desk 21

Financial Derivatives & Analytics Valuation of Range Forwards ( Exporters ) & Seagull – 1 Y till 5 Y 23 Range Forwards vs LTFX – 1 Y till 5 Y 25 Valuation of Buy Put Contracts – 1 Y till 5 Y 26 Upcoming Training Programs of “ Foreign Exchange Maverick Thinkers”

27



Global Economic Review

The global growth drag emanating from EM and the global manufacturing

sector is persisting into the final quarter of the year. Latest forward-looking

global manufacturing indicators show global goods output declining to lowest levels

since April 2013 primarily driven by weakness in the EM sector, but

increasingly impacting DM as well, as this week’s US ISM and surprisingly weak

US payrolls underscore. On net, EM downward revisions are more substantial,

reflected in the Global economy. In particular, various forecasts have once again downgraded

China growth forecasts for 2015 and 2016

GBP, and now expect Japan GBP, Taiwan GBP, and possibly Singapore to already

be in technical recession.

This broader global weakness has fed-back into G4 policy more meaningfully in

recent weeks. In the US, two weeks ago the Fed dovish surprised markets by

neither hiking, nor giving a strong intention of a near-term hike. The policy statement

cited “developments abroad”, which Chair Yellen in her press conference confirmed

included downside China risks, amongst others. And so our first forecasted Fed hike

is now moved back by a quarter to December. In the UK, our first expected BoE rate hike has similarly been pushed back by a quarter.

Meanwhile, author also reiterate the observation that

growth and disinflation risks originating primarily from EM are a common global

shock for developed world policymakers, but which act less as a differentiator to

drive material divergence between G4 economies. Hence, despite these material

changes to policy trajectories, our forecast revisions amongst the majors are

marginal. EUR/USD is expected to see a shallower 1.08 trough in 1Q, as ECB QE

expansion remains a risk, not baseline scenario. USD/JPY is unchanged, peaking at

123 in 1Q16 as a one-quarter delay in Fed hiking and one-quarter front-load in BoJ

QQE roughly offset each other. This is not to downplay the potential volatility that may surround these upcoming policy events.

Indeed, the shifting timing and

signalling of policy, not to mention the periodic de-leveraging rallies seen recently in

JPY and EUR will keep intra-G4 FX risk more difficult to manage than G4-EM risk,

for example. Rather, we simply to recognize that the medium-term trajectories we

have been anticipating for some time in these reserves currencies, remain intact.

On the other hand, with few signs of a turnaround of EM downside risk, we

further downgrade some EM FX forecasts, even after last month's substantial

across-the-board revisions. This month we further downgrade TWD and IDR in

Asia, and MXN in Latin America. In EMEA EM, we downgrade ZAR targets as

well, but in contrast, the upward EUR revision pushes up CEEMEA forecasts in

parallel.



Perspective on Commodities Currencies – Australian Dollar (AUD)

Well as we understand that valuation of Commodities are at low specially OIL. We also

understand that world financial system is dominated by three Commodities Currencies which

are Australian Dollar, New Zealand Dollar, and Canadian Dollar. Well over the period of time

one proxy Commodity Currency is already there which Chinese Yuan is or RMB. China is

always having deep impact on the valuation of Commodities Currencies.

Well sitting today Australian Dollar is trading at .70 levels which is very low however at the

same time good for Australian Exporters and not very good for Australian Importers. The

prospect for Australian Dollar is to depreciate further as Commodities are falling. AUD/USD

which is also a direct pair is highly correlated with valuation of Commodities across the Globe.

Sitting today which is 30th Jan’16 Australian Dollar vs USD is trading at .7082/.7087 which

effectively means if you would like to sell one Aussie against USD then you would be getting

.7082 cents and as an importer you have to pay .7087 to convert into Aussie.

1. Australian Dollar is facing MTD ( Month till Date ) volatility of -2.65% vs USD

2. Australian Dollar is facing 3M ( 3 Months ) volatility of -.77% vs USD

3. Australian Dollar is facing 6M ( 6 Months ) volatility of -3.01% vs USD 4. Australian Dollar is facing YTD ( Year till Date ) volatility of -2.65% vs USD

Advice for Exporters and Importers:-

Well as we understand that Commodities Prices are getting highly volatile and there are lots

of projections in the markets which suggest that OIL would stick at $ 30 / Barrel over a long

period of time henceforth all three Commodities Currencies Australian Dollar , New Zealand

Dollar and Canadian Dollar would be facing big volatility. There is lots of pressure on Reserve Bank of Australia (RBA) to cut the rates as well to maintain the carry trades.

Well we clearly understand that Australian Dollar amongst one of the very important

currencies from Carry Trade point of view however AUD acting as Investment Carry Trade.

## Short Term Forwards Contracts are those contracts whose maturity is rolling 12 months.

Sitting today which is 30th Jan’16 rolling 12 months contracts are 30th Jan’17 and all the

contracts having maturity date over and above 30th Jan’17 is known as LTFX or Long Term Forwards Contracts.

## Well premiums of having both short term and long term is decided by Interest Rate Parity

(IRP) which is nothing but the difference between Interest Rates of Reserve Bank of Australia which is known as Cash Rate and USD Interest Rates.

## If Premiums are positive then markets are expecting depreciation in the base currency

which is Australian Dollar however if premiums are negative then markets are expecting

appreciation in the base currency which is Australian Dollar. Well here we are talking about



Looking at the aforesaid prices it is advisable to have Options for Australian Dollar covering

your Exports Receivables as this would help you protect of downside as well as update in the movement of the Australian Dollar.

Volatility in Australian Dollar – Last 5 Years

Hey Traders

~ see a great

fall in

Australian

Dollar!!

Aussie would fall further and may touch

.65 levels soon as Commodities

Currencies are falling and may fall

more in near term.



Perspective on Commodities Currencies – New Zealand Dollar (NZD)






Well sitting today New Zealand Dollar is trading at .64 levels which is very low however at

the same time good for New Zealand Exporters however not very good for New Zealand

Importers. The prospect for New Zealand Dollar is to depreciate further as Commodities are

falling. NZD/USD which is also a direct pair is highly correlated with valuation of

Commodities across the Globe.

Sitting today which is 30th Jan’16 New Zealand Dollar vs USD is trading at .6469/.6497 which

effectively means if you would like to sell one NewZie against USD then you would be getting

..6469 cents and as an importer you have to pay .6497 to convert into NewZie.

1. New Zealand Dollar is facing MTD ( Month till Date ) volatility of -5.22% vs USD

2. New Zealand Dollar is facing 3M ( 3 Months ) volatility of -4.66% vs USD

3. New Zealand Dollar is facing 6M ( 6 Months ) volatility of -1.72% vs USD 4. New Zealand Dollar is facing YTD ( Year till Date ) volatility of -5.22% vs USD




period of time henceforth all three Commodities Currencies Australian Dollar , New Zealand

Dollar and Canadian Dollar would be facing big volatility. Well Exporters and Importers are

advised to hedge their Foreign Currency whether Receivables, Payables using Options

Contracts vs hedging the same using Plain Vanilla Forwards Contracts whether STFX (Short

Term Forwards Contracts) or LTFX (Long Term Forwards Contracts)



contracts having maturity date over and above 30th Jan’17 is known as LTFX or Long Term

Forwards Contracts.


(IRP) which is nothing but the difference between Interest Rates of Reserve Bank of New

Zealand and USD Interest Rates.


which is New Zealand Dollar however if premiums are negative then markets are expecting

appreciation in the base currency which is New Zealand Dollar. Well here we are talking

about Commodities Currencies henceforth spot movement as well as premiums are always

volatile in nature henceforth Options are always advisable for both Exporters as well as

Importers.



Looking at the aforesaid prices it is advisable to have Options for New Zealand Dollar

covering your Exports Receivables as this would help you protect of downside as well as update in the movement of the New Zealand Dollar.

Volatility in New Zealand Dollar – Last 5 Years

Hey Traders ~

see a great fall

in New Zealand

Dollar!!

New Zealand would fall further and

may touch .60 levels soon as

Commodities Currencies are falling and

may fall more in near term.



Perspective on Commodities Currencies – Canadian Dollar (CAD)






Well sitting today Canadian Dollar is trading at 1.3971 levels. We all understand that

Canadian is an US ally henceforth if USDX which is Dollar Index would go so would be the

valuation of Canadian Dollar. If USDX would go down then the valuation of Canadian Dollar

would go down. As we all aware of the fact that in last few weeks USDX is losing.

Sitting today which is 30th Jan’16 Canadian Dollar vs USD is trading at 1.3971/1.3975 which

effectively means if you sell one $ then you would get 1.3971 Canadian Dollar however if you

would like to buy 1 Canadian Dollar then you have to shell 1.3975 from your packet.

1. Canadian Dollar is facing MTD ( Month till Date ) volatility of .95% vs USD

2. Canadian Dollar is facing 3M ( 3 Months ) volatility of -.84% vs USD

3. Canadian Dollar is facing 6M ( 6 Months ) volatility of 6.76% vs USD 4. Canadian Dollar is facing YTD ( Year till Date ) volatility of .95% vs USD




period of time henceforth all three Commodities Currencies Australian Dollar , Canadian

Dollar and Canadian Dollar would be facing big volatility. Well Exporters and Importers are

advised to hedge their Foreign Currency whether Receivables, Payables using Options

Contracts vs hedging the same using Plain Vanilla Forwards Contracts whether STFX (Short Term Forwards Contracts) or LTFX (Long Term Forwards Contracts)





(IRP) which is nothing but the difference between Interest Rates of Reserve Bank of Canada

(RBC) and USD Interest Rates.


which is Canadian Dollar however if premiums are negative then markets are expecting

appreciation in the base currency which is Canadian Dollar. Well here we are talking about

Commodities Currencies henceforth spot movement as well as premiums are always volatile

in nature henceforth Options are always advisable for both Exporters as well as Importers.



Looking at the aforesaid prices it is advisable to have Options for Canadian Dollar covering

all your exports receivables.

Volatility in Canadian Dollar – Last 5 Years

As $ is gaining

strength so

CAD. CAD

would continue

to be volatile in

near term.

Canadian Dollar (CAD) would be very

volatile in near term as it sink with the

valuation of Dollar. Overall CAD would

have some impact of Commodities as

well.



Perspective on European Union Currencies – Euro (EUR)

Well as we understand that European Union is facing lots of crisis and European Central Bank

being the first Central Bank who put negative depo rate which effectively means money

should flow deep into the system. Problems of Euro not yet resolved as PIIGS not yet settled

however at the same time we need to appreciate the work done by ECB whereby they never

allowed Euro to trade at 1.05 levels.

Eurozone economy likely to head higher in current year however we need to stress on the

domestic demand like in the case of India, China. There are various headwinds in the markets

which may take valuation of Euro down to 1.05 and out of the same $ Strength would play a

key role here. If $ would continue to have more strength then Euro may fall down.

Sitting today 30th Jan’15 Euro is trading at 1.0831/1.0837 which effectively means if you are

selling 1 Euro then you would be getting 1.0831 $ and if you would like to buy Euro then you

have to shell 1.0837. In the last few weeks Euro being very volatility.

1. Euro is facing MTD ( Month till Date ) volatility of -.27% vs USD

2. Euro is facing 3M ( 3 Months ) volatility of -1.58% vs USD

3. Euro is facing 6M ( 6 Months ) volatility of -1.42% vs USD

4. Euro is facing YTD ( Year till Date ) volatility of -.27% vs USD


One important aspect which all Exporters and Importers should look at is the exit of Britain

from European Union. Well we already saw the impact of the same on GBP and if this would

happen the GBP may go down to 1.35 levels and we would surely see impact on Euro as well.

Well as a Trader we would appreciate the fact that both Euro and GBP are going in tandem

against $. In case of $ Strength both Euro and GBP would move up and in case of $ weakness

both get down.





(IRP) which is nothing but the difference between Interest Rates of European Central Bank

(ECB) and USD Interest Rates.


which is Euro however if premiums are negative then markets are expecting appreciation in

the base currency which is Euro. Well here we are talking about Commodities Currencies

henceforth spot movement as well as premiums are always volatile in nature henceforth

Options are always advisable for both Exporters as well as Importers.



Looking at the issues European Union is facing since last few years and there is no visibility

that these issues would get resolve soon henceforth all Exporters are advised to cover their

Exports Receivables where in Receivables is in Euro however cost is in some other currencies

at spikes. Well exporters are also advised to use Options Contracts as well regarding covering

of their receivables.

Volatility in Euro – Last 5 Years

Euro would fall to 1.05 levels or may touch parity if GBP would go out of

European Union + PIIGS issue not yet fixed as yet by ECB.



Perspective on European Union Currencies – Great Britain Pound (GBP)

As we understand that UK is facing the biggest question which is whether to exit European

Union or not?? However at the same time Growth prospects of GBP also not sounding very

well and as a Trader we can certainly see the same on valuation of Currency as well. There

was the time when GBP was trading over 1.61 levels which effectively means 1 GBP was equal

to 1.61 $ however over the period of time many issues somewhat relates to Global headwinds

as well took GBP to 1.42 levels and sitting today which is 30th Jan’16 GBP is trading at 1.4245 levels and facing highest volatility amongst all currencies shared above.

Sitting today 30th Jan’15 Euro is trading at 1.0831/1.0837 which effectively means if you are

selling 1 Euro then you would be getting 1.0831 $ and if you would like to buy Euro then you

have to shell 1.0837. In the last few weeks Euro being very volatility.

1. GBP is facing MTD ( Month till Date ) volatility of -3.35% vs USD

2. GBP is facing 3M ( 3 Months ) volatility of -7.67% vs USD

3. GBP is facing 6M ( 6 Months ) volatility of -8.81% vs USD 4. GBP is facing YTD ( Year till Date ) volatility of -3.35% vs USD


One important aspect which all Exporters and Importers should look at is the exit of Britain

from European Union. Well we already saw the impact of the same on GBP and if this would

happen the GBP may go down to 1.35 levels and we would surely see impact on Euro as well.

Well as a Trader we would appreciate the fact that both Euro and GBP are going in tandem

against $. In case of $ Strength both Euro and GBP would move up and in case of $ weakness both get down.



contracts having maturity date over and above 30th Jan’17 is known as LTFX or Long Term

Forwards Contracts.

## Well premiums of having both short term and long term is decided by Interest Rate Parity (IRP) which is nothing but the difference between Interest Rates of BOE and USD.




henceforth spot movement as well as premiums are always volatile in nature henceforth

Options are always advisable for both Exporters as well as Importers.



Looking at the issues European Union is facing since last few years and there is no visibility

that these issues would get resolve soon henceforth all Exporters are advised to cover their

Exports Receivables where in Receivables is in Euro however cost is in some other currencies

at spikes. Well exporters are also advised to use Options Contracts as well regarding covering

of their receivables.

Volatility in GBP – Last 5 Years

GBP to come down to 1.35 levels soon if UK would quit European Union

which would surely never be a great sign for Euro as well as GBP.



Perspective on Asian Currencies – Japanese Yen (JPY

Abenomics disappointed again this year. GDP contracted in 2Q before rebounding mildly in

2nd half of the year. The objective of having flowing $ Trillions into the economy is good for

nothing and today Japanese Yen is acting as a pup. If $ is gaining strength so would be

Japanese Yen and if it is falling so would be Japanese Yen. In last few course of time Japanese

Yen faced with lots of volatility in the currency markets.

Sitting today Japanese Yen is trading at 121.03 / 121.08 whereby if you are selling $ then you

would be getting 121.03 and if you are buying $ then you have to sell 121.08. Japanese Yen turning very volatile and purely linked with USD Index.

1. JPY is facing MTD ( Month till Date ) volatility of .45% vs USD

2. JPY is facing 3M ( 3 Months ) volatility of .35% vs USD

3. JPY is facing 6M ( 6 Months ) volatility of -2.33% vs USD

4. JPY is facing YTD ( Year till Date ) volatility of .45% vs USD


Japanese economy suffered many shocks over the past several years including 2008 financial

crisis, the 2011 eastern japan earth quake, the 2012 European Debt Crisis, the consumption

tax hike last year. Solid growth has not returned despite the introduction of Abenomics since

2013.





(IRP) which is nothing but the difference between Interest Rates of Bank of Japan (BOJ) and

USD Interest Rates.




henceforth spot movement as well as premiums are always volatile in nature henceforth Options are always advisable for both Exporters as well as Importers.



As a Trader we can clearly see the Implied Vols of Japanese Yen which is over 10% henceforth

it is not advisable to both Exporters and Importers to hedge their exposures using Options

Contracts like Buy Put, Buy Call, Range Forwards (Exporters) and Range Forwards (Importers).

Volatility in Japanese Yen – Last 5 Years

Abenomics to work soon if Japanese to stay in the Global Financial Markets.

As we aware that another Financial Crisis on the roll and soon we would be

face another big Financial Crisis starting from United States.



Forecast of Currencies ~ DBS Singapore, JP Morgan

Currencies Q1’16 (EOP) Q2’16 (EOP) Q3’16 (EOP) Q4’16 (EOP)

AUD/USD .6500 .6600 .6800 .7000

NZD/USD .5900 .5900 .5800 .5800

USD/CAD 1.3600 1.3600 1.3400 1.3200

EUR/USD 1.0700 1.0500 1.0300 1.0400

GBP/USD 1.5300 1.5400 1.6100 1.6600

USD/JPY 123.00 124.00 126.00 125.00

USD/INR 67.5000 68.6000 69.6000 69.1000

Notes: Forecasts are shared by respective banks like DBS Singapore, JPM.

Notes: - EOP stands End of Period

View of Editorial Desk: - Well we can very well see the huge volatility in the currency pair

during 2016. In that regards Exporters are advised to hedge their forecasted receivables

using Options Contracts like Range Forwards (Exporters), Seagull (Exporters) and Buy Put Contracts.

Well it is always advisable to Corporate Treasurers to hedge their exposures using Seagull

Contracts when exchange pairs are getting highly volatile. Seagull contracts are nothing but the sum of Buy Call + Range Forwards (Exporters) or Buy Put + Call Spread.

Risk Management Policies (RMP):-

Well we also need to understand that Risk Management Policy (RMP) of the Hedge Funds,

Banks, Trading Desks, and Corporate Treasuries plays a very important role in the Trading

strategies. Well as we understand that world is almost on the verge of big Neon Swan event

henceforth Hedge Funds Managers, Bankers, Traders and Corporate Treasurers need to start

changing their Hedging Strategies and start taking Options, Exotic Derivatives as to hedge their Receivables and Payables covering Shorter and Longer tenors.



Financial Derivatives & Analytics

The Financial Derivatives & Analytics helps Hedge Funds, Bankers, Traders, Corporate

Treasurers, Proprietary Traders, and Quants to hedge their Portfolio covering respective positions in the markets.

Financial Derivatives & Analytics would be targeting all sorts of professionals in the Industry

and over the period of time would sink with our Brand “Foreign Exchange Maverick

Thinkers”. Well a dedicated sub You Tube Channel would get launch covering live video

session of all Derivatives discussed in “Financial Derivatives & Analytics”

Financial Derivatives & Analytics would be covering variety of trading positions in the

Magazine. To name a few:-

Assets Classes Balance Sheet Positions

Valuation of Derivatives Instruments

Business Consulting

Equity Contingent

Considerations Put Contracts US GaaP

Debt Call Contracts IFRS Options Hybrid Securities Range Forwards Indian GaaP

Warrants Seagull Contracts IND-AS Futures Options Valuations Call Spread MTM Valuations Swaps Put Spread

Interest Rates Derivatives

Strategic Hedging Digital Options Contingent Considerations

Embedded Derivatives

Ratio Back spread Buyouts

Off Balance Sheet Exposures

Exotic Derivatives Earn out

Hedge Accounting Intangibles



Valuations of Range Forwards Contracts (Exporters) + Seagull Contracts ~

USD/INR

(Range Forwards, Seagull vs LTFX)

Well today we would be discussing pricing of Cost Reduction Structures (Range Forwards, Seagull Contracts) along with Long Term Forwards Contracts covering till 5 Years. Well Pls be note that as per RBI Cost Reduction Structures can't be taken after 2 Years. India is one of the most conservative Foreign Exchange Markets in Asia Pacific region and henceforth Singapore is acting as World Financial Centre covering all sorts of Derivatives which India can’t imagine. Well when it comes to Offshore Treasury Markets then Singapore is No 1 even better than other Offshore Markets like NY, LLF, Australia and Tokyo. Pricing of USD/INR LTFX Forwards Contracts keeping spot at 67.82 levels. If today any exporter would like to price USD/INR Forwards Contracts where by Exporter is selling $ and buying INR the following are the pricing he would be getting:- Long Term Forwards Contracts (LTFX) Outright Pricing:- 1 Years O/R Rate (Outright Rate) = 67.82 + 4.1875 = 72.0075 2 Years O/R Rate (Outright Rate) = 67.82 + 7.60 = 75.4200 3 Years O/R Rate (Outright Rate) = 67.82 + 11.46 = 79.2800 4 Years O/R Rate (Outright Rate) = 67.82 + 15.55 = 83.3700 5 Years O/R (Outright Rate) = 67.82 + 19.50 = 87.3200 Pricing of Options Contracts - Range Forwards (Exporters) Well Range Forwards (Exporters) is nothing but the combination of two legs which is - Buy Put and Sell Call. Well Buy Put means Exporter is having right to sell $ at an agreed rate to Bank however Sell Call means Bank is having right to buy from Exporter. Implied Volatilities of USD/INR taken in Black Scholes Model:- 1 Years Implied Vols - 8.250% 2 Years Implied Vols - 9.00% 3 Years Implied Vols - 9.450% 4 Years Implied Vols - 9.80% 5 Years Implied Vols - 10.225% Range Forwards Pricing (Buy Put, Sell Call) - 1 Y till 5 Y. Range Forwards are priced using Zero Cost Collar Strategy using pricer developed by “Foreign Exchange Maverick Thinkers” covering all sorts of Derivatives Contracts. Well valuation of Range Forwards (Exporters) are done at OTMF (Out of the Money Forward) keeping strike price at 1 Implied Volatility away.



Pricing of Zero Cost Collars (Range Forwards):- 1 Years Range Forwards (Buy Put 66.15, Sell Call 77.12) 2 Years Range Forwards (Buy Put 70.24, Sell Call 83.90) 3 Years Range Forwards (Buy Put 72.46, Sell Call 89.94) 4 Years Range Forwards (Buy Put 75.48, Sell Call 96.90) 5 Years Range Forwards (Buy Put 78.94, Sell Call 104.16) Pricing of Seagull Contracts (Seagull = Buy Call + Range Forwards) Traders note that Seagull Contracts are priced using OTMF Buy Put and OTMF Buy Call. Well as we discussed earlier during high volatility Seagull is one of the most effective techniques to hedge both Receivables and Payables. 1 Years Seagull (Buy Call - 77.90, Buy Put - 68.15, Sell Call - 71.75) 2 Years Seagull (Buy Call - 85.08, Buy Put - 70.24, Sell Call - 75.44) 3 Years Seagull (Buy Call - 93.20, Buy Put - 72.45, Sell Call - 79.44) 4 Years Seagull (Buy Call - 101.38, Buy Put - 75.48, Sell Call - 83.85) 5 Years Seagull (Buy Call - 110.10, Buy Put - 78.94, Sell Call - 88.64) Advice from Editorial Desk:- Well as we understand that markets are getting highly volatile and in that regards both Exporters and Importers to hedge their receivables and payables and Seagull is one of the effective derivatives in that regards. Well Corporate Treasurers are advised to hedge their exposures using OTMF Buy Put and OTMF Buy Call Options Derivatives. Corporate Treasurers are most welcome to contact Editorial Desk at 91-9899242978 or email at [email protected] in case of any advice.

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Valuations of Strip of Buy Put Contracts vs LTFX ~ USD/INR

Well today we are going to discuss Strip (Series) of Buy Put Contracts of USD/INR for Exporters. Well as we understand that Buy Put is an Options Derivatives Contracts where by Exporter is having right to sell his $ earnings at an agreed rate (known as Moneyness of the Options Contracts) with the Bank on agreed date. Settlement of the Buy Put along with other Options Contracts to be done using Tokyo Cut (3.30 PM Tokyo or 11.30 AM IST)

While doing valuation we are taking current spot rate of 68.05 along with 1 Year Onshore Premiums of Rs 4.20 henceforth Outright Rate would be 72.25 for 1 Years.

Implied Volatilities for USD/INR are as follows:-

1 Years USD/INR Implied Volatility - 8.425% 2 Years USD/INR Implied Volatility - 9.150% 3 Years USD/INR Implied Volatility - 9.525% 4 Years USD/INR Implied Volatility – 10.00 % 5 Years USD/INR Implied Volatility - 10.275% Pricing of USD/INR Buy Put Strip ~ 1 Y till 5 Years keeping strike at 62.32 which is Deep Out of the Money Options (D-OTMF)

1 Years Buy Put Pricing at D-OTMF Strike (62.32) is $ 548 2 Years Buy Put Pricing at D-OTMF Strike (62.32) is $ 1520 3 Years Buy Put Pricing at D-OTMF Strike (62.32) is $ 1402 4 Years Buy Put Pricing at D-OTMF Strike (62.32) is $ 2000 5 Years Buy Put Pricing at D-OTMF Strike (62.32) is $ 2100 Advice from Editorial Desk:- Well as we understand that markets are getting highly volatile and in that regards both Exporters and Importers to hedge their receivables and payables. If Hedging Policy of the Corporate don’t allow of having Cost Reduction Structures then Corporate Treasurers should take Buy Put Contracts where by both downside and upside is protected. Corporate Treasurers also remembers the fact that aforesaid premiums are almost zero and in fact Hedge Accounting is allowing you to amortize such premiums in P&L. Corporate Treasurers are most welcome to contact Editorial Desk at 91-9899242978 or email at [email protected] in case of any advice.




Valuations of Strip of Buy Call Options Derivatives ~ USD/INR

Well today we are going to cover "Pricing of USD/INR Buy Call Options Derivatives Contracts ". Well as we understand that Buy Call is for Importers who would like to hedge their payables using Options Derivatives Contracts. Well Importers are having Buy Call, Range Forwards, Seagull to cover their exposures but this article would deal with Buy Call only.

Well sitting today USD/INR Spot Rate is 68.20 and the following are the Onshore USD/INR Premiums covering 1 Y till 5 Y along with Outright Rate which is sum of Spot Rate + Premiums.

Long Term Forwards Contracts (LTFX) Outright Pricing:- 1 Years USD/INR Onshore Premiums - Rs 4.16 (O/R = 72.3600) 2 Years USD/INR Onshore Premiums - Rs 7.90 (O/R = 76.1000) 3 Years USD/INR Onshore Premiums - Rs 11.90 (O/R = 80.1000) 4 Years USD/INR Onshore Premiums - Rs 16.00 (O/R = 84.2000) 5 Years USD/INR Onshore Premiums - Rs 20.00 (O/R =88.2000) Well these all are agreed rate however what would happen if INR would depreciate then the same Importer who booked Forward Contract is gone henceforth he is advisable to take Options Contracts which is Buy Call Options Contracts.

Sitting today the following are the premiums to be paid in case Buy Call Contracts by Importers. Well the amount of premiums paid can be amortized in the books till that time.

Pricing of USD/INR Buy Call Contracts ~ OTMF Contracts

1 Years USD/INR Buy Call Contracts - $ 13,000 2 Years USD/INR Buy Call Contracts - $ 41,000 3 Years USD/INR Buy Call Contracts - $ 66,000 4 Years USD/INR Buy Call Contracts - $ 97,000 5 Years USD/INR Buy Call Contracts - $ 127,000 Well as an importer you need to understand that you are taking Buy Put contract at strike rate of OTMF which is 1 Implied Vol away. This would assist you to have an agreed rate in case of Options Contracts along with protection would be there in case of sudden depreciation in INR.

Advice from Editorial Desk:- Well as we understand that markets are getting highly volatile and in that regards both Exporters and Importers to hedge their receivables and payables. If Hedging Policy of the Corporate don’t allow of having Cost Reduction Structures then Corporate Treasurers should take Buy Call Contracts where by both downside and upside is protected.



Upcoming Trainings of “Foreign Exchange Maverick Thinkers”

Foreign Exchange Maverick Thinkers is launching various Trainings programs at Asia Pacific

level covering the following:-

1. Treasury Workshops

2. Foreign Exchange Workshops

3. Technical Analysis Workshops (Basic Technical Analysis)

4. Technical Analysis Workshops (Advanced Technical Analysis)

5. Frauds & Forensic Accounting

6. Modelling Workshops (Financial Modelling, Cash Flow , Risk Based Modelling)

7. Basel Accord Workshops (Basel I, II , III )

8. Accounting Standards (US GaaP, IFRS, Indian GaaP, IND-AS)

Workshops are getting launched in Delhi, Mumbai, Pune, Hyderabad, Bangalore, Kolkata and

Ahmedabad. Well at Asia Pacific level launching at Singapore, Hong Kong, Malaysia, Australia,

New Zealand, Canada, London and respective countries.

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Good Luck Ladies, Gentlemen!!

Editorial Desk is already in your service..!!

You are always welcome to connect Editorial Desk at 91-9899242978,

[email protected] or Skype Connect ~ Rahul5327.


the maverick treasurer magazine - jan 2016

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