Underlying Risks in Balance Sheet
Companies trading in Physical Assets (Corporates)
Companies trading in Financial Assets (Financial Institutions)
Settlement approach to Product Structures
5 Steps Hedging Process
Step 1: Identify the Risks
Client Activity:
Client exporting goods to buyers in US, sells directly to buyers in SGD
US Buyers given 90 days (40%)
SG Buyers given 60 days (60%)
Client sold USD goods to US Buyers
Client records USD AR from US Buyers
Client expect to receive USD AR
Client based in Singapore, pays suppliers and reports financials in SGD
After collecting USD, they need to convert into SGD.
Results in SGD/USD FX risk in AR
Step 2: Quantify the Risks
Step 3: Measure Duration of the Risks
Step 4: Determine Direction of the Risks
Step 5: Reverse the Risks
Underlying Product Structures
1. Spot
2.1 Forward
2.2 Swap
3. Pay Now, Receive Later
4. Option
