Use of Forecasting Technique in Purchase and Sale of Foreign Currency

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  • Topic: United States dollar, Foreign exchange market, Exchange rate
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QUANTI R51 D.M.K. Gutierrez March 22, 2012

Company Background

Definition of terms

Objective

Analysis of Alternative

Recommendation

Located in the Philippines Customers: 99% export to SEA countries, Europe, India and USA Suppliers: 70% from Japan, 30% from China, SEA countries and Philippines

Functional currency •Currency used in the primary economic environment where a company operates

Foreign exchange risk •The risk that an investment’s or an asset’s value will change as a result of changes in foreign currency rates

Forward contracts •An arrangement to purchase or sell currency at an agreed date in the future, at a rate agreed now

Technical analysis •Analysis where historical price action predicts future price action

Fundamental analysis •Analysis which seeks to forecast future currency value through the analysis of all of the economic, political and social factors relevant to it

1st week Collections JPY USD PHP 2% 10% 0% 12%

2nd week 0% 10% 0% 10%

3rd week 15% 0% 1% 16%

4th week 33% 29% 0% 62%

Total 50% 49% 1% 100%

Payments JPY USD PHP

5% 0% 13% 18%

2% 0% 1% 3%

10% 0% 9% 19%

48% 0% 12% 60%

65% 0% 35% 100%

Date

Dollar

JPY Am ount

JPY-USD Rate

Ave. JPY-USD Rate

Opportunity Cost

% Loss

2011/1/18 2011/1/31 2011/2/25 2011/3/31 2011/4/29 2011/5/31 2011/6/28 2011/8/31 2011/10/27 2011/11/22 2011/11/22 2011/12/20 2011/12/23

20 732 610 620 600 321 271 380 390 100 450 400 300 5,194

1,648.80 59,658.00 49,715.00 50,840.00 48,390.00 26,001.00 21,850.73 29,051.00 29,328.00 7,695.00 34,627.50 31,120.00 23,280.00 413,205.03

82.44 81.50 81.50 82.00 80.65 81.00 80.63 76.45 75.20 76.95 76.95 77.80 77.60 79.28

82.5670 82.5670 81.5721 81.5721 83.3388 81.1158 80.5207 77.0640 76.6515 77.4609 77.4609 77.8641 77.8641 79.82

1,651.00 60,439.00 49,759.00 50,575.00 50,003.00 26,038.00 21,821.00 29,284.00 29,894.00 7,746.00 34,857.00 31,146.00 23,359.00 416,572.00

(2.20) (781.00) (44.00) 265.00 (1,613.00) (37.00) 29.73 (233.00) (566.00) (51.00) (229.50) (26.00) (79.00) (3,366.97)

0% -1% 0% 1% -3% 0% 0% -1% -2% -1% -1% 0% 0% -1%

Date

Dollar

JPY Am ount

JPY-USD Rate

Ave. JPY-USD Rate

Opportunity Cost

% Loss

2011/1/18 2011/1/31 2011/2/25 2011/3/31 2011/4/29 2011/5/31 2011/6/28 2011/8/31 2011/10/27 2011/11/22 2011/11/22 2011/12/20 2011/12/23

20 732 610 620 600 321 271 380 390 100 450 400 300 5,194

1,648.80 59,658.00 49,715.00 50,840.00 48,390.00 26,001.00

82.44 81.50 81.50 82.00

82.5670 82.5670 81.5721 81.5721

1,651.00 60,439.00 49,759.00 50,575.00

(2.20) (781.00) (44.00) 265.00 (1,613.00) (37.00) 29.73 (233.00) (566.00) (51.00) (229.50) (26.00) (79.00) (3,366.97)

0% -1% 0% 1% -3% 0% 0% -1% -2% -1% -1% 0% 0% -1%

21,850.73

29,051.00

NET OPPORTUNITY COST = JPY3.4M
80.65 83.3388 81.00 81.1158 80.63 80.5207 76.45 77.0640 75.20 76.95 76.95 77.80 77.60 79.28 76.6515 77.4609 77.4609 77.8641 77.8641 79.82

50,003.00

26,038.00 21,821.00 29,284.00 29,894.00 7,746.00 34,857.00 31,146.00 23,359.00

29,328.00 7,695.00 34,627.50 31,120.00 23,280.00 413,205.03

416,572.00

To minimize the foreign exchange risk on short-term purchase and sales of currencies

Limit only to technical analysis (study based on historical data)

Current:

•Convert at month end or when needed

Option:

•Enter into forward forex contracts using Forecasting Techniques

60.000

80.000

100.000

120.000

20.000

40.000

JANUARY MARCH MAY

2009
JULY SEPTEMBER NOVEMBER JANUARY MARCH MAY

Ave. USD-JPY Rate

2010
JULY SEPTEMBER NOVEMBER JANUARY MARCH MAY

2011

JULY SEPTEMBER NOVEMBER

Ave. USD-JPY Rate

2012 JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER

As of Dec 77.873 77.495 78.083 79.836 77.839 77.424 75.435 74.337 72.928 71.835 72.064 72.262

As of Jan 76.938 77.828 78.417 80.173 78.176 77.758 75.763 74.659 73.245 72.148 72.374...
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