Download Foreign currencies - Brochure

Companies
Good for business:
get your forex transactions
on track
Foreign currencies
Do you want to hedge
foreign currency risks or
invest in forex?
A bank that takes your
needs into account
and provides you with
comprehensive support
is good for business.
Manage your foreign currencies
with a system – it’ll pay off
Your business is dependent on
foreign currencies. There are
risks in that. But if systematically managed, currencies can
also play a part in your business success.
As our client, you benefit directly from
our worldwide network and our knowhow as one of the world’s leading
providers of foreign exchange services.
We will respond to your needs by devising a solution for you that is ideally
tailored to your company’s strategic
and operational requirements, and that
takes your company’s value chain into
consideration.
Whether you want to hedge against
price fluctuations, invest in foreign currencies, or trade them – we offer you
customized and skilled all-round support.
Investing
You can use forex investments to manage your company’s cash reserves effi­
ciently and earn higher returns than
available through term deposits. Since
there is little correlation between forex
investments and equities and bonds,
this is also a good way to diversify your
portfolio.
Trading
Some companies have sophisticated currency requirements and need to process
high-volume transactions regularly on the
market. If you or your company have the
necessary expertise and understanding
of the risks, as a “Direct Access Client”
we can grant you 24/7 direct access
to our trading platform, our currency
traders and our online research portal.
The following pages give you an overview of how we can help you to get
more out of your foreign currencies.
Hedging
If you don’t manage currency risks effi­
ciently, you have no defense against the
ups and downs of exchange rates. All
it needs is for exchange rates to go the
wrong way, and your accounts won’t
add up any more. With a systematic
hedging strategy, you make it as certain
as possible that you can keep your
budget on track – and avoid any losses.
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Protect your profits
against currency losses
Once your company starts
doing business abroad, you
have the ups and downs of
the currency markets to cope
with. We’ll help you spot
the risks and smooth out the
exchange rate fluctuations.
Even minor changes in exchange rates
can have a major impact on Swiss companies that export or import. For example: Let’s say your product costs 9,000
Swiss francs to make. The sales price
is 10,000 francs, so the margin is 1,000
francs. You get an order from the USA
and invoice your delivery at the current
rate of 1 Swiss franc to the dollar. Before
the goods are delivered and the invoice
paid, the dollar/franc rate falls to 0.9.
The 10,000 US dollar return on the sale
is now worth only 9,000 francs – and
instead of a profit on the deal, you’re
looking at a big fat zero.
4
Hedging protects
the fruits of your labor
Even small changes in exchange rates
can affect your company’s financial position and make it more difficult to calculate your margins. Systematic hedging
gives you the security that comes from
planning ahead – in much the same way
that hedges have always protected the
harvests of English farmers.
Containing risks
Handling currency risks is a (rolling)
process with five steps. Again and again,
the process shows that what matters is
not so much the hedging of individual
transactions, but having a definite hedging strategy and sticking to it.
. Identify risks
1
Currency risks can result a) from cash
flow from trading goods in foreign
currencies, b) from offers in foreign
. Measure risks
2
Known currency risks need to be quantified. It is particularly important to gauge
which way the currency markets are
going, and over what period of time.
4. Transfer residual risks
or hold on to them
Where residual risks are concerned, you
need to decide to what extent it makes
sense to hedge them. A residual risk
can still result in currency-related profits.
Only when these questions have been
clarified should you select your hedging
instrument.
Reduce risks
3.
Companies can eliminate many exchange
rate risks naturally through the intelligent coordination of purchases and sales
abroad.
5. Measure performance
Systematic evaluation of both the effects
of the foreign currencies and of the
hedging measures will give you valuable
information for future decision-making.
currencies, and c) from currency reserves
on accounts. It is vital to spot these risks
at an early stage.
Further information
ubs.com/sme-international
ubs.com/tef
Brochures on foreign currencies, international trade
and trade & export finance
Your client advisor
UBS SME Service Line 0844 853 004
Our international transactions specialists
044 237 40 35
5
Reduced volatility through layering with the UBS “3+” concept
1.3500
1.3000
1.2500
1.2000
1.1500
1.1000
1.0500
1.0000
0.9500
Sep. 05
Spot
Mar. 06
6 months forward
Sep. 06
Mar. 07
Sep. 07
Mar. 08
Sep. 08
Mar. 09
Sep. 09
Mar. 10
Sep. 10
Hedging 4 layers mix
Past performance is not a reliable indicator of future performance.
Simulation result for USD/CHF 1-year hedging with three strategies (backtesting over five years: September 2005–September 2010)
Get a better grip on risks with “3+”
Abrupt price swings hit your company
harder than longer-term trends you
can prepare for. This is the idea behind
our “3+” hedging concept. It’s just
as suitable for SMEs as it is for large
companies.
With “3+” you start by defining the
band within which you want your hedging strategy to operate. Imminent cash
6
flows are more securely hedged than
those further in the future. This way, you
stay flexible if the market environment
changes.
For every time horizon, “3+” estimates a
minimum (basic) hedge, a target hedge
and a maximum hedge. Conservative instruments are used for the basic hedge,
opportunistic for the target hedge, and
higher-risk products, promising possibly
higher returns, for the maximum hedge.
The result is a hedge portfolio graduated
by time, with a flexible mix of hedging
instruments.
Reduce volatility with “3+”
Studies show that it doesn’t matter how
companies manage their foreign currencies: long-term average rates often turn
out to be similar. There are, however,
considerable differences in fluctuations.
Without systematic hedging, companies
are far more exposed to the moods of
the currency markets and quickly deviate
from their budget. Our “3+” hedging
concept reduces fluctuations and thus
your risks.
The world’s largest trading center
Exchange rates have a direct impact on
exports and imports. They also impact
the labor market, consumer prices and
other areas of everyday life. So it’s good
to know how the currency markets
work.
Fast as lightning. Sophisticated electronic trading programs mean that
all relevant news has an immediate
effect on exchange rates. But it’s not
just speed that’s increasing – price
fluctuations are too.
Unofficial. There is no organized official
exchange for currencies. Instead, international banks such as UBS carry out the
transactions between them.
Liquid. The largest market participants,
including UBS, trade forex from Monday
to Friday around the clock and around
the world.
Gigantic. Forex is the world’s largest
market. Every day around four trillion Swiss francs change hands, which
equates to eight times the annual GDP
of Switzerland. And this figure is increasing: between 2007 and 2010, volumes
rose by around 20 percent.
Global. Over a third of the forex trading
volume is processed via banks in the
United Kingdom. The next largest pro­
cessors are the US, Japan, Singapore and
Switzerland. UBS is represented in all
these locations.
Focused. Currencies are easier to manage than the countless equities on the
stock market. The ranking list of the six
most important currencies is as follows:
US dollar, euro, yen, pound sterling,
Australian dollar, Swiss franc.
Complex. Exchange rates are influenced
by a wide variety of factors, such as economic growth, inflation rates, consumption, interest rates, stock market prices,
commodity prices and geopolitical risks.
It is no coincidence that forex forecasting
is considered to be a highly advanced
economic discipline.
This information originates from the Bank for International Settlements (BIS) (September 2010). Every
three years the BIS conducts a survey of 53 central
banks to collect data on the forex market.
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Invest your liquidity
where it pays off:
on the currency market
The currency market provides
good ways for you to manage
your liquid funds optimally.
We’re here to help you do this.
This first rule of cash management is to
ensure that you have the right amount
of money in the right currency in the
right place and at the right time. So how
should you manage excess liquid funds
in the short term? These are usually invested in the traditional money market,
but there are interesting alternatives,
such as the currency market.
By investing in currencies, you can also
cover short terms of between one week
and six months, and thus manage your
liquidity efficiently. Depending on your
risk profile and investment horizon, this
can include direct investments in currency pairs, money market securities,
derivatives or structured products.
More stability through diversification
There is also another important argument for investing in currencies: the
returns depend on different external
factors to those that affect equities and
bonds. Forex investments thus improve
portfolio diversification and provide
greater stability.
Further information
ubs.com/cashmanagement
Your client advisor
UBS SME Service Line 0844 853 004
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Improve your returns with DOCUs
tailored to your needs
If the money market isn’t offering attractive returns, you can use a DOCU
(double currency unit) tailored to the
exchange rate of a currency pair to
achieve higher interest. DOCUs are
structured products; the underlying
(currency pair), term and exercise date
can be chosen freely.
This is how a DOCU works:
Suppose that you expect the euro to
remain stable against the Swiss franc
for the next month and you decide
to invest in a DOCU tailored to the
euro-Swiss franc exchange rate with a
maturity of one month. Upon expiration, you will definitely receive the
nominal amount as well as an attractive coupon. Which of the two currencies the payment is made in, depends
on how the exchange rate develops.
If the euro does not weaken more
strongly against the Swiss franc than
expected (and the final spot rate is
above the exercise price), the payment
of the nominal amount and coupon
is made in Swiss francs. However, if
the euro falls significantly and is equal
DOCU payment diagram
Return p.a.
3.0%
to or below the exercise price on the
expiration date, the nominal amount
and coupon will be paid out in euros –
converted to the exercise price. If your
company also requires euros, this risk
is likely to be acceptable.
DOCUs and other products can be
developed by your client advisor exclusively for you, and customized to
your desired term and in line with your
risk-return profile. This is made possible by the UBS FX Investor, a tool that
is unique in the industry and allows
structured products to be developed
individually. For investments of over
50,000 Swiss francs, you receive a private placement with a personal securities number within a few minutes. This
allows you to react quickly to trends
and thus invest your excess liquidity
with success.
DOCU
Money
market
EUR/CHF
0.4%
0.0%
1.3200
Exercise price
1.3500
Spot rate
If the EUR/CHF spot rate is greater than the exercise price on expiration, the investment (with
interest of 3% p.a.) will be paid back in CHF.
If the EUR/CHF spot rate is below the exercise
price on expiration, the CHF investment including
interest will be converted into and paid out in EUR
at the exercise price.
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You can expect more
from a strong partner
Greater proximity
You can count on us for all your forex
transactions. Your client advisor knows
you and your company. If necessary, he
or she can easily request assistance from
one of our forex specialists. In Switzerland we operate seven regional forex
competence centers, one of which is sure
to be located close to you.
Greater competence
You benefit from the expertise and expe­
rience of a leading global foreign exchange provider. Our bank is represented
at all key forex trading centers. Other
banks also count on our expertise and
use our platform for forex transactions.
Greater choice
We can offer you a solution for almost
every need. Our offering includes the
entire spectrum of forex services. Where
necessary, our specialists develop tailored
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products for you. We also provide various electronic platforms, which enable
you to process your forex transactions
independently.
More innovation
Our offering is always completely up to
date. The UBS “3+” hedging concept,
for example, is now also established
at other providers. Our bank is also a
pioneer in the area of electronic trading
applications. And using the innovative
UBS FX Investor, your client advisor can
develop exclusive structured forex products for you in a matter of minutes.
More opportunities
As Direct Access Clients, companies with
significant transaction volumes gain
access to our trading platform, forex
specialists and research portal around
the clock from Monday through Friday.
This offer is aimed at clients with complex forex needs, the necessary specialist
knowledge, and sufficient familiarity
with the associated risks to execute forex
transactions independently.
More confidence
Our experienced forex specialists will be
happy to advise you and give you their
support. As one of the leading providers on the forex market, we have an
insight into the relevant data flows and
offer trailblazing electronic systems. This
means we not only keep you one step
ahead in terms of the information available, we also enable you to make your
decisions with more confidence.
More information
Would you like to find out more? Tell
us what you need. We will be happy
to show you how to make more out of
your forex transactions. You’ll see: it’s
good for business – for your company
too.
UBS AG
P.O. Box
8098 Zurich
ubs.com/sme
© UBS 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.
Published in English, German, French, and Italian. Printed in April 2011. 83605E
This publication is intended for information only and is not
intended as a recommendation, an offer or a solicitation of an offer
to buy or sell any investment or other specific products. It is not
to be taken as investment, legal or tax advice and should not be
used as a basis for investment decisions. Before making an investment decision, you should obtain relevant professional advice.
Please note that UBS reserves the right to alter its services, products or prices at any time without prior notice. Certain products
and services are subject to legal restrictions and cannot be offered
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is prohibited without prior permission of UBS.