[Official Thread] Ringgit Exchange Rate

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koolaid

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gasband said:
This is basically hedging for future. We buy on certain contracts at a fixed price and quantity that both seller and buyer agrees on. Of course for example, at current rate of 1:2.9, I am only willing to buy one month's worth but if we agree on hedging at 1:3.2, I may commit 3 or 6 months worth or orders at that rate and agree on a contract. The advantage is that seller gets a firm contract at a fixed average rate and buyer buys at a fixed rate and this is usually advantageous to both parties when currencies become too volatile and businesses want visibility of costs. Of course it can backfire very badly for either side if the fluctuation swings either way much much more than they hedge for.
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very interesting. thanks so much for sharing. :) please correct me if im wrong on the following:

a) so clients who need a rate of 3.2 has to sell an option to the bank?

b) any idea what will happen if within the 6 months, myr touches or goes above 3.2? will the client receive rm320k immediately? assuming the client uses sgd as the base currency.

c) what happens after 6 months, sgdmyr is still below 3.2? will the client get his sgd100k? does the client need to pay a premium? or will he receive a premium instead?

i learnt about this facility many years ago from a corp banker... i am trying to recall how this currency hedging facility works.
 
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gasband

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koolaid said:
very interesting. thanks so much for sharing. :) please correct me if im wrong on the following:

a) so clients who need a rate of 3.2 has to sell an option to the bank?

b) any idea what will happen if within the 6 months, myr touches or goes above 3.2? will the client receive rm320k immediately? assuming the client uses sgd as the base currency.

c) what happens after 6 months, sgdmyr is still below 3.2? will the client get his sgd100k? does the client need to pay a premium? or will he receive a premium instead?

i learnt about this facility many years ago from a corp banker... i am trying to recall how this currency hedging facility works.
Click to expand...

I may not be absolutely right but this is my experience. The bank will only act as the medium between 2 parties, so its up to the 2 parties to talk to their banks.

But essentially, the reason for hedging is to protect each other. For example. if I am able to sell 6 months worth of goods instead of the usual one month at an exchange rate where I already make very good profits, I might be willing to commit at a future contract a 1:3.2. For the buyer, because they think the rate will spiral beyond control and they want visibility of costs, they are willing to commit to buy more now at 1:3.2. In such contracts, usually its final meaning if the currency fluctuates up or not, it will not affect this contract unless one party decides to negotiate but usually does not happen.
 
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koolaid

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gasband said:
I may not be absolutely right but this is my experience. The bank will only act as the medium between 2 parties, so its up to the 2 parties to talk to their banks.

But essentially, the reason for hedging is to protect each other. For example. if I am able to sell 6 months worth of goods instead of the usual one month at an exchange rate where I already make very good profits, I might be willing to commit at a future contract a 1:3.2. For the buyer, because they think the rate will spiral beyond control and they want visibility of costs, they are willing to commit to buy more now at 1:3.2. In such contracts, usually its final meaning if the currency fluctuates up or not, it will not affect this contract unless one party decides to negotiate but usually does not happen.
Click to expand...

k thanks for sharing.
 
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I know many rich Malaysians come in to change to sing dollar to stop the bleeding..
 
mykuali.net

mykuali.net

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JB Rate stays at 2.93

The moment most are waiting for 3.00 is just round the corner.

It may well over 3.00 and stable at 2.90.
 
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