Understanding the FX Puzzle

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Wells Fargo Foreign Exchange
Carine Gursky FX Specialist carine.p.gursky_at_wellsf
argo.com 800-788 3132
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FX has the Largest Markets
Worldwide Stock Markets Total per
year 18,000,000,000,000 (18 Trillion)
Source NASDAQ Foreign Exchange Totals Total
per year 360,000,000,000,000 (360 Trillion)
20x
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The FX Markets Never Sleep
When it is 3pm on a Monday in the U.S.
Yen traders are arriving atTokyo
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EUR moved 17 over last 12 months
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JPY moved 12 over last 12 months
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What Happens When You Dont Manage FX
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Protect The Value of Your USD
3 things you can do to minimize FX risk to your
business

• If you buy from overseas, request your invoice in
  both currencies.
• ? Pay your supplier in the cheaper currency

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Protect The Value of Your USD (cont.)

• Save time by managing your foreign exposure
  online
• ? Check live exchange rates online
• ? Execute standing orders in case the market
  moves in your favor
• ? Handle your foreign exchange payments when
  most convenient for you, 24/7

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Protect The Value of Your USD (cont.)

• For large amounts payable in the future, lock
  in exchange rates today that can be used to
  assure their value tomorrow.
• ? Forward Contract
• ? Options Contract

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Forward Contract
It is the right and the obligation

• Contractual agreement to use todays rate of
  exchange for a future payment
• Value date is anywhere from 3 days to 365 days in
  the future
• No settlement of US dollars until future date
• There is no premium to enter into a Forward
  Contract

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Forward Contract
Example

• Wineco importer imports wine from France.
• They have just negotiated the price of a
  container of wine at 320,000 EUR. The wine will
  be shipped via container and will arrive in 3
  months.
• The bill is payable upon the container arriving
  at the port.
• Forward Contract Wineco can lock-in todays
  exchange rate for 3 months with a forward
  contract. No dollars are exchanged until his
  payable is due.
• The rate will not fluctuate once its locked-in,
  and the importer can price his cases for
  distribution without fear that his costs will
  change.

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Options Contract
It is the right but not the obligation

• Contractual agreement to purchase the right, but
  not the obligation, to use a predetermined
  exchange rate for a future payment
• Value date is anywhere from 3 days to 365 days in
  the future
• There is sometimes a premium
• No cost options contracts can also be structured

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Options Contract
Example

• Wineco importer imports wine from France.
• They have just negotiated the price of a
  container of wine at 320,000 EUR. The wine will
  be shipped via container and will arrive in 3
  months.
• The bill is payable upon the container arriving
  at the port.
• Vanilla Options Contract Wineco can purchase
  the option to use a guaranteed exchange rate.
• If the market moves in his favor, Wineco is not
  obligated to use the option.
• If the market moves against him, Wineco is
  protected with the option.