Good for business: get your forex transactions on track

Transcription

1 Companies Foreign currencies Good for business: get your forex transactions on track

2 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.

3 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 efficiently 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 efficiently, 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. 3

4 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

5 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. 1. Identify risks Currency risks can result a) from cash flow from trading goods in foreign currencies, b) from offers in foreign currencies, and c) from currency reserves on accounts. It is vital to spot these risks at an early stage. 2. Measure risks 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. 3. Reduce risks Companies can eliminate many exchange rate risks naturally through the intelligent coordination of purchases and sales abroad. 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. 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. 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 Our international transactions specialists

6 Reduced volatility through layering with the UBS 3+ concept Sep. 05 Mar. 06 Sep. 06 Mar. 07 Sep. 07 Mar. 08 Sep. 08 Mar. 09 Sep. 09 Mar. 10 Sep. 10 Spot 6 months forward 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 fi ve 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 suit able 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 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. 6

7 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. Unofficial. There is no organized official exchange for currencies. Instead, international banks such as UBS carry out the transactions between them. 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. 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. Liquid. The largest market participants, including UBS, trade forex from Monday to Friday around the clock and around the world. Global. Over a third of the forex trading volume is processed via banks in the United Kingdom. The next largest processors 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. 7

8 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

9 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 DOCU payment diagram Return p.a. 3.0% 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 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. 0.4% 0.0% Exercise price Spot rate Money market EUR/CHF 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. 9

10 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 experience 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 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. 10

11 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 worldwide on an unrestricted basis. This brochure is not intended for distribution outside Switzerland. Reproduction in whole or part is prohibited without prior permission of UBS. UBS AG P.O. Box 8098 Zurich ubs.com/sme UBS 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 E