HSBC transacts first ever Bangladesh Taka Onshore FX Option Trade
Wednesday, 9 December 2009
FE Report
Global financial Giant HSBC has recently transacted the first ever Bangladesh Taka (BDT) Onshore FX Option Trade in the country for two local and overseas business entities, the Bank authority revealed Tuesday.
The new method, the authority said, allows the importers and exporters involved in a foreign transaction to hedge their exposures more effectively in case of a future movement of the exchange rate.
"We transacted two onshore USDBDT FX Options at zero-premium Range Forwards for Viyellex Ltd- a local RMG exporter and Coats Bangladesh- a UK based supplier of yarn and other raw materials", said arique I Khan, Head of Global Markets of HSBC Bangladesh.
"The deal which worth US$ 0.5 million each is the first of its kind in the country and likely to usher in a new era in foreign transaction for the country by removing many of the existing hurdles", he added.
Until now, the only method of hedging BDT FX risk was to book an FX Forwards (FWD) contract. In such cases, banks usually hedged the spot risk of the FX Forwards sold to or brought from customers and carry the interest rate risk of the two currencies within their balance sheet.
"However, in such cases, interest rate differential does not always reflect an accurate FWD rate due to the absence of BDT term interest rate market", said Tarique I Khan, Head of Global Markets of HSBC Bangladesh.
"At the same time, the regulations require the banks to close out the Forwards contract at maturity date and if an LC gets delayed due to shipment of or other unforeseen event, customers are obliged to close out the Forward contract at the Forward or worse rate", he added.
HSBC authority said that the new method of FX Options would address such shortcomings of the Forward contract by providing them a sort of 'buying insurance' and more flexibility.
"An Option, for an upfront premium or fee, gives the buyers the right to buy or sell a currency at maturity date but with no obligation and as such gives the customers additional flexibility to hedge their future BDT FX risks within a forecasted range without having to incur any premium cost", Tarique said.
"If US Dollar or Bangladeshi Taka moves beyond a certain adverse rate, customer is hedged at that rate and can exercise his right. Again, if the rate moves in the favour of underlying FX exposure, customer can only benefit up to a certain level", he added.
Global financial Giant HSBC has recently transacted the first ever Bangladesh Taka (BDT) Onshore FX Option Trade in the country for two local and overseas business entities, the Bank authority revealed Tuesday.
The new method, the authority said, allows the importers and exporters involved in a foreign transaction to hedge their exposures more effectively in case of a future movement of the exchange rate.
"We transacted two onshore USDBDT FX Options at zero-premium Range Forwards for Viyellex Ltd- a local RMG exporter and Coats Bangladesh- a UK based supplier of yarn and other raw materials", said arique I Khan, Head of Global Markets of HSBC Bangladesh.
"The deal which worth US$ 0.5 million each is the first of its kind in the country and likely to usher in a new era in foreign transaction for the country by removing many of the existing hurdles", he added.
Until now, the only method of hedging BDT FX risk was to book an FX Forwards (FWD) contract. In such cases, banks usually hedged the spot risk of the FX Forwards sold to or brought from customers and carry the interest rate risk of the two currencies within their balance sheet.
"However, in such cases, interest rate differential does not always reflect an accurate FWD rate due to the absence of BDT term interest rate market", said Tarique I Khan, Head of Global Markets of HSBC Bangladesh.
"At the same time, the regulations require the banks to close out the Forwards contract at maturity date and if an LC gets delayed due to shipment of or other unforeseen event, customers are obliged to close out the Forward contract at the Forward or worse rate", he added.
HSBC authority said that the new method of FX Options would address such shortcomings of the Forward contract by providing them a sort of 'buying insurance' and more flexibility.
"An Option, for an upfront premium or fee, gives the buyers the right to buy or sell a currency at maturity date but with no obligation and as such gives the customers additional flexibility to hedge their future BDT FX risks within a forecasted range without having to incur any premium cost", Tarique said.
"If US Dollar or Bangladeshi Taka moves beyond a certain adverse rate, customer is hedged at that rate and can exercise his right. Again, if the rate moves in the favour of underlying FX exposure, customer can only benefit up to a certain level", he added.