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Guest Speaker_IF & IFM_200909

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treasury management

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Treasury Management EVP & DIRECTOR TREASURY AND CAPITAL MARKET SECTORS, FINANCIAL MANAGEMENT GROUP () Deposit (Cash , Cheque , Bahtnet) Bill of Exchange (B/E) Income payment services Repay Loan Sell Bond (Bank Portfolio) Issue Bond FX Transactions2Co unter Pa rt y : Ba nk o f Thaila nd Bilateral Repo Deposit Facility Standing Facility (Corridor) SWAP Co unter Pa rty : Fin ancia l Inst it utio ns Private Repo Interbank SWAP Buy Bond (Primary and Secondary Market) Sell and Buy Back (Bond) Call Loan3Policy Rate (Bilateral Repo Overnight Rate) Corridor Interest Rate (+/- 0.50% of Policy Rate) Interbank Rate BIBOR Rate (Bangkok Interbank Offered Rate)BIBOR Rate are determined from information that is available during 10.45-11.00 AM (Bangkok time) in each working day. BIBOR is the rate of interest at which banks borrow funds from other banks in the Bangkok interbank market4 Reserve+Cash in Hand++= (1*0%) + (2*0%) + (3*2.19%) + 94.X% = 100*1.25% 0 + 0 + 0.0657. + 94X% = 1.25 . 94X% = 1.25-0.0657 . X = (1.25-0.0657)/94 = 0.0126 . X (%) X % = 0.0126*100 =1.26% (%) = 1.26-1.25 = 0.01% 0.4% = 1.26 + 0.4 = 1.66 %5 Reserve+Cahs in Hand++= (6*0%) + (0*0%) + (0*2.19%) + 94.X% = 100*1.25% 0 + 0 + 0 + 94X% = 1.25 . 94X% = 1.25 . X = (1.25)/94 = 0.013 . X (%) X % = 0.013*100 = 1.30% (%) = 1.30-1.25 = 0.05% 0.4% = 1.30 + 0.4 = 1.70 % Non-Resident Reserve 6% 6Introduction forForeign ExchangeInternational Market Opening4.00 a.m. Sydney 8.30 p.m. New York 6.00 a.m. Tokyo 7.00 a.m. Singapore Hong KongINTERNATIONAL MARKET OPENING2.00 p.m. London 1.00 p.m. FrankfurtRemark: Bangkok Time12.00 a.m. Bahrain8 Sett leme nt (Time Zone) USD/THB USD USD New York Replaceme nt Risk Risk 9 :Continuous Linked Settlement (CLS) system 2517 Bankhaus Herstatt 60% 3 2538 Bearing Brothers European(ECU) Currencies Union (Settlement Risk) 11- Bank A THB BANK BBank AThailandTHBBank BCanada Bank B CAD Bank A BATHNET* 03.00-11.00 CETCAD LVTS*Bank Bs nostro bankBank As nostro bank14.00-24.00 CET Bank A Bank B time zone * BAHTNET (Bank of Thailand Automated High-value Transfer Network) * LVT (Large-value funds transfer system)12Credit Crunch 2550 : Sub-prime CDOs Asset-backed commercial paper (ABCP) 2551: Northern Rock (Bank of England) 2550 2551 Northern Rock 1.4 write-off 2551: Bear Stearns JPMorgan Chase Bear Stearn Bear s 30 Bear Stearns 2551: Merril Lynch Bank of America 13Credit Crunch 2551: Citigroup 60% 1 20 Citigroup 25 2552: (Bank of England) Quantitative Easing 150 Credit Crisis 2552: Colonial Bank 6 2552 14 Colonial Bank BB&T Continuous Linked Settlement (CLS) systemCLS Bank International G 20 2540 . London Clearing House Settlement Agent 15 AUD, CAD, CHF, EUR, GBP, JPY, USD, DKK, NOK, SEK, SGD, HKD, KRW, NZD, ZAR CLS (Settlement Risk) settle 2 (Payment versus Payment)15CLS as a settlement agentMuti-currency (net payment) Muti-currency (net payment)Bank ACLS Bank Matching & Payment versus Payment at CLS BankBank B16CLS- Operation TimelineC.E.T. 0 - 6.30 7.00 8.00 8.01 9.00 9.01 10.00 10.05 10.25 Thai Time 6.00 12.30 13.00 14.00 14.01 15.00 15.01 16.00 16.05 16.25 Submitting Instruction CLS Settlement Process Begins First Pay-In Time Grid Pay-In Short Warning, Member Failure to Meet Pay-In Second Pay-In Time Grid Suspend Member for Pay-Out if notification issued Final Pay-In due for Asian Pacific Currencies Pay-In Calls issued for Asian Pacific Currencies Asian Pacific Currency Closed Deadline17CLS- Operation Timeline (Cont)C.E.T. 12.00 12.05 13.00 Thai Time 18.00 18.05 19.00 Final Pay-In due for EU / N. Amer / S. African Currencies Pay-In Calls issued for EU / N. Amer / S. African Currencies EU/N, Amer/S, African Currencies Cloased Deadline18Failure ManagementFirst Day CLS Bank arrange an overnight today/tomorrow swap transaction(s) with its Liquitdity Provider (s)Second DayFail to PayFail to PayCLS will arrange outright purchase from liquidity provider (s)CLS assess combined loss allocation19Failure Management Netting Part LossTransactionFirst Day Failure Total Payment A Total Payment B CLSReal Payment - NettingPayment A Pay for A Liquidity ProviderCLS allocate loss to settlement members according to policy Settlement CLS Settlement Member 1 Member 2 Settlement Member N20Second Day FailureCLS pay payment A back to Liquidity ProviderPayment A Liquidity Provider CLSCLS Bank1.Settlement Members User Members Third PartiesNostro Agents SM UM TC SM UM TC Shareholders (Account) CLS Bank Settlement Instructions Third Parties . 2549 SM UM 56 TC 750 212.3.Autorize Via d by SM SM/UMSettlement Members (Shareholders) Operation settle CLS operation: 1.) CLSS SWIFTFin SWIFTNet 2.) Pay-in Pay-out Schedule 3.) Funding Contigency Plan : 1.) Capital Ratio 2.) Short-term rating A3 3.) Settlement Member22Third PartyThird Parties Settlement Members User Members Third Parties CLS Bank ( shareholder cost USD 4.94 mil.)231.) Settlement Risk 2.) Member Third Parties 3.) Back Office Straight Through Processing 4.) CLS Netting Net Finding (/ gross ) , CLS24 CLS1.) Foreign Exchange 2.) discriminate Bid-Ask Spread rate 3.) Basel ll25 26 / 27International Trade Finance (Export & Import) International Lending (Onshore & Offshore) Foreign Exchange and Derivative (Spot Swap Forward FX-Options IRS CIRS Interest Options Swaption) Remittance (Inward & Outward) Speculation (Hedging)28Spot ChartSpot / 2 2 Deal Date Sell 34.1996 O/N 0.0002 TOM 0.0002 2 daysSpot date Sell 34.2029Forward ChartForward / 2 Deal Date Maturity DateSell 34.1996 Spot Date Sell 34.20 Sell 34.206 1 Mth 0.06O/NTom30Swap ChartSwap / Value date BUY BUY/SELLSELL/BUYDeal DateMaturity Date SELLValue date SELLMaturity Date Buy31SwapSwap / Swap = Spot + Forward Swap 2 Swap Sell-Buy Value Spot Value Forward SELL SPOT AND BUY FORWARD(S/B) Swap Buy-Sell Value Spot Value Forward BUY SPOT AND SELL FORWARD(B/S)32Swap USD USD Swap USD (Spot) USD (Forward) Forward Contract Premium/Discount Spot=33.40 ,1 MTHS= 0.03 33.40 -USD +THB Customer Position do swap sell spot and buy forward 33.43 +USD -THB33Swap Swap USD (Spot) USD (Forward) Forward Contract Spot=33.45 , 1MTH= 0.02 33.45 33.47 Customer Position do swap buy spot and sell forward +USD -THB -USD +THB34 Swap PointSwap Point = Spot*(Domestic interest Foreign Interest)*time 100: Premium Discount 35FX OPTIONBasic Introduction Futures OptionsFutures Options 37Buyer vs SellerOption buyer owns right to exerciseOption seller is obliged to deliver upon exercise by owner38Option ParametersCall/PutStrike Predetermined exchange rate upon exercised. Expiry Date Date when option can be exercised. Delivery Date Spot settlement from expiry date. Notional Size Size of the option.Call: The right to buy a currency. Put: The right to sell a currency.Example; USD CALL THB PUT Strike (K) = 34.16 Expiry = 3M Notional (N) = USD1mil Premium = 0.33/USD or THB330 ,00039STYLE & CUTOFFStyle European Style = option buyer can only exercise at expiry American Style = Option buyer can exercise at any time Exercise Cut-Off time TOK Cut = 3 p.m. Tokyo time NY Cut = 10 a.m. New York time All options done in Asia are done by default TOK cut and European style unless stated otherwise40ITM, OTM, ATMFTake the example of a 1 month USD/THB option strike 33.60 FORWAR PUT CALL D > Strike 34.00 = Strike < Strike 33.00 OTM ATM ITM ITM ATM OTM41Barrier Option KI = Knock-in = option activated upon barrier trading.- 3 month USD PUT THB CALL, K=32.00, KI=31.00 KO = knock-out = option expired upon barrier trading.- 3 month USD PUT THB CALL, K=31.00, KO=32.0042Corporate HedgingHedger Exporter Outright Sell Call Short Call Obligation to sell (Writer) Long Call Right to buy (Holder) Put Long Put Right to Sell (Holder) Short Put Obligation to buy (Writer)ImporterBuyBuy options (Holder) is Right to Buy or Sell when the options is ITM Sell option (Writer) is Obligated to Buy or Sell when the Holder exercised43Payoff DiagramBuy call plus Sell put : Importpayoff payoff+call Pay premium spot -put Sell call plus Buy put : Exportpayoff payoffReceive premiumspot+put spotReceive premium -callspotPay premium Premium Limit Loss = Premium Paid and Unlimit Gain Premium Gain = Premiun Received and Oligated to sell or buy 44Interest Rate Swap (IRS)Basic Introductiondefinitiona swap contract that one party exchanges a stream of interest for another party's stream. (No exchange of notional) The cash flow streams are fixed or based on some floating index such as Libor, Sibor, THBFIX, TFD(Thai Baht fixed Deposit)BenefitsHedging of interest rate. Managing asset and liability mismatch. Reducing cost of funds by taking a view on future interest rate movement.46Interest Rate Swap (IRS)Fixed Rate Payer: Client @ 4.63% p.a. Floating Rate Payer: KTB @ 6 month THBFIX Effective Date: Spot Date Termination Date: 5 years Notional: THB1,000,000,000 Amortization: No6 month THBFIX 6 month THBFIX 6 month money market rateCounter PartyFixed 4.58%KTB IRSFixed 4.63%ClientKTB Packing47Interest Rate Swap (IRS)Example: Client is borrowing USD20mil at 3 month LIBOR + 65bps with maturity 28/6/12. Party A: Krung Thai Bank Party B: Client Effective Date: 28/6/07 Termination Date: 28/6/12 Notional: USD20,000,000 Floating Rate Payer: Party A Floating Rate: 3 month LIBOR + 65bps Fixed Rate Payer: Party B Fixed Rate: 5.25%LIBOR + 65bps LIBOR + 65bps LIBOR + 65bpsCounter PartyFixed 5.20%KTBFixed 5.25%ClientLender48Payoff Diagram IRS NettingPay off Float RatePaid fixed Received 2 KTB pay Float Received Fixed49Currency Interest Rate Swap (CIRS)Basic IntroductionCurrency Interest Rate Swap (CIRS)definitio n an OTC bilateral contract between two parties to exchange periodic coupon payments in two different currencies over a period of time. The principle amounts are mostly exchanged initially and at maturity at prevailing market exchange rate.51Currency Interest Rate Swap (CIRS)Initial Principal ExchangeUSD NotionalJPY Notional (at Spot FX) JPY CouponKTBUSD CouponClientJPY CouponJPY LenderJPY NotionalUSD NotionalFinal Principal Exchange52Currency Interest Rate Swap (CIRS)KTBJPY Notiona lPayfix JPYJPY Notiona lClientUSD Notiona lPay Libor USDUSD Notiona l53Currency Interest Rate Swap (CIRS)Description: Involves the exchange of principal and interest in one currency for principal and interest in another currency. Principals are exchanged at the start (optional) and end of the swap. Allows a client to convert effectively a liability or an asset from one currency to another. Characteristic: Can be floating to floating, fixed to fixed or fixed to floating Final exchange of principal is needed.54Currency Interest Rate Swap (CIRS)Example: A state enterprise has a loan from JBIC of JPY10bln with maturity of 20/12/2023. Fixed interest rate at 1.05% p.a. Client is looking to covert the loan to THB loan by CIRS. Party A: Krung Thai Bank Party B: Client Notional: JPY10,000,000,000 Effective Date: 28/6/2007 Termination Date: 20/12/2023 Initial Exchange: None Final Exchange: Yes Exchange Rate: 0.2850 Interest Exchange: On Interest Payment Date (Dec 20 , Jun 20) KTB pays to Client: JPY 1.05% Semi-annually, Act/365F JPY Fixed 1.05% JPY Fixed Semi-annually, Client pays to KTB: THB 3.50% 1.05% Act/365FKTBTHB Fixed 3.50%ClientLender55Currency Interest Rate Swap (CIRS)Example: A state enterprise has a loan from JBIC of JPY10bln with maturity of 20/12/2023. Fixed interest rate at 1.05% p.a. Client is looking to covert the loan to THB loan by CIRS. Party A: Krung Thai Bank Party B: Client Notional: JPY10,000,000,000 Effective Date: 28/6/2007 Termination Date: 20/12/2023 Initial Exchange: None Final Exchange: Yes Exchange Rate: 0.2850 Interest Exchange: On Interest Payment Date (Dec 20 , Jun 20) KTB pays to Client: JPY 1.05% Semi-annually, Act/365F JPY Fixed 1.05% JPY Fixed Semi-annually, Client pays to KTB: THB 3.50% 1.05% Act/365FKTBTHB Fixed 3.50%ClientLender56Thank You

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