Better hedging tools for Chinese corporates - FX Options and swaps to be traded onshore
- China's FX markets have been growing since the world's second largest economy has been exposed to FX risk with a massive rise in global exports in the last 20 years. The renminbi has been controlled by the central bank and had very little fluctuation. The Peoples Bank of China made minor changes in 2005 when it allowed the Chinese Yuan to float against the US dollar within a certain range.
China's FX markets have been growing since the world's second largest economy has been exposed to FX risk with a massive rise in global exports in the last 20 years. The renminbi has been controlled by the central bank and had very little fluctuation. The Peoples Bank of China made minor changes in 2005 when it allowed the Chinese Yuan to float against the US dollar within a certain range.
China's currency regulator has sanctioned the trading of cross currency swaps and fx options by corporates. This is a grand move for corporates who are exposed to currency risk and had limited products to hedge their exposure.
A cross-currency swap is an interest rate swap in which the counterparties of the transaction exchange their cash flows in different currencies. Upon initiation of a cross-currency swap, the counterparties make an initial exchange of notional principals in the two currencies.
During the life of the swap, each party pays interest to the other. And at the maturity of the swap, the parties make a final exchange of the initial principle amounts, reversing the initial exchange at the same spot rate. US dollar/renminbi, yen/renminbi, euro/renminbi and sterling/renminbi CCS have traded onshore in China to-date.
Previously, corporates wanting to hedge currency risks could only do so through offshore non-deliverable forwards (NDF) markets. These short-term, cash-settled currency forwards take place between them where the profit or loss is adjusted between the two counterparties based on the difference between the contracted NDF rate and the spot Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term rate on an agreed notional amount, on the agreed settlement date. NDFs are typically traded in US dollars.
This has been a massive boost for overall Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term in China's as the notional value of contracts traded with corporate counterparts reached $10 million–20 million per contract and daily transaction turnover exceeded $50 million, compared with an average $20 million per week in interbank market at the start of 2011.
The RMB is still non convertible and has limited use outside of China, although trade in Hong Kong has increased from $181 billion in 2010 to $237.6 billion in 2011.
China's State Administration of Foreign Exchange (SAFE) is the national regulator and policy maker on FX products, SAFE is keen to develop products including derivatives to ensure China's monetary policy is in line with economic expectations.
Grab your latest copy of the Forex Magnates Retail Forex Industry Report.
China's FX markets have been growing since the world's second largest economy has been exposed to FX risk with a massive rise in global exports in the last 20 years. The renminbi has been controlled by the central bank and had very little fluctuation. The Peoples Bank of China made minor changes in 2005 when it allowed the Chinese Yuan to float against the US dollar within a certain range.
China's currency regulator has sanctioned the trading of cross currency swaps and fx options by corporates. This is a grand move for corporates who are exposed to currency risk and had limited products to hedge their exposure.
A cross-currency swap is an interest rate swap in which the counterparties of the transaction exchange their cash flows in different currencies. Upon initiation of a cross-currency swap, the counterparties make an initial exchange of notional principals in the two currencies.
During the life of the swap, each party pays interest to the other. And at the maturity of the swap, the parties make a final exchange of the initial principle amounts, reversing the initial exchange at the same spot rate. US dollar/renminbi, yen/renminbi, euro/renminbi and sterling/renminbi CCS have traded onshore in China to-date.
Previously, corporates wanting to hedge currency risks could only do so through offshore non-deliverable forwards (NDF) markets. These short-term, cash-settled currency forwards take place between them where the profit or loss is adjusted between the two counterparties based on the difference between the contracted NDF rate and the spot Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term rate on an agreed notional amount, on the agreed settlement date. NDFs are typically traded in US dollars.
This has been a massive boost for overall Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term in China's as the notional value of contracts traded with corporate counterparts reached $10 million–20 million per contract and daily transaction turnover exceeded $50 million, compared with an average $20 million per week in interbank market at the start of 2011.
The RMB is still non convertible and has limited use outside of China, although trade in Hong Kong has increased from $181 billion in 2010 to $237.6 billion in 2011.
China's State Administration of Foreign Exchange (SAFE) is the national regulator and policy maker on FX products, SAFE is keen to develop products including derivatives to ensure China's monetary policy is in line with economic expectations.
Grab your latest copy of the Forex Magnates Retail Forex Industry Report.