The Effectiveness of Foreign Exchange Option on Enterprise 's Hedging

[[abstract]]In the competitive business down, materials, wages, exchange rates for the company is a very important part of the exchange rate can affect the company's profit and loss, the direction of the financial side of the exchange rate needs to be very clear, often may bring losses, Benefit, in the end dangerous or opportunity, but also test the financial management of corporate financial management and exchange rate risk management capabilities. Financial markets are drastically changing in the market, shocks in the market, face all kinds of external changes, even the central bank president Peng Huainan once said, "NT is lit or demoted, no one knows." No one can accurately predict the market. For business, business units have orders, and generally as long as the smooth exchange rate of the majority of manufacturers rarely hedge, wait until the big fluctuations, the hedge has been too slow. If you can do a good job of hedging will effectively lock the gross margin, you can stabilize the advantages of the expected profit, so that enterprises sound business. Nowadays, the world economy is becoming more and more integrated. Business is becoming more and more developed. The flow of capital between countries and countries is becoming more and more frequent. Enterprises often use transnational operation to enhance their own strength and expand their business areas for enterprises. The establishment of overseas companies to help enterprises to the world, to carry out cross-border business, enhance the international image of enterprises. The use of foreign companies OBU (OFF-SHORE COMPANY) planning hedge "exchange risk" has become a financial professional operation. Foreign-funded enterprises through the bank Taiwan OBU can trades the foreign exchange derivative financial market, in the market more companies use the project, divided into foreign exchange options trading, cash transactions, forward foreign exchange transactions, the target redeemable forward contracts Four, now from these four to be discussed: 1. The spot exchange rate --- spot payment is the bank to buy (for) the price of foreign currency, expiring directly to the then exchange rate, and did not do hedging function, (the worst) 2. Foreign exchange options ---- effective hedging effect, on the one hand can reduce the cost of hedging, although the expected error, but also reduce the risk of hedging errors, play a hedge function. (Can choose to perform or give up the adjustment space) 3. Forward foreign exchange --- forward foreign exchange expires, the two sides agreed in the future on a specific date or period (after the two business days above the trading day), according to the agreed exchange rate, currency transactions. (Irrespective of exchange rate movements, still need to be implemented). 4. Target redeemable forward contract (TRF) ---- guests and banks to buy an option to sell a two-year option, the Taiwan Bank to sell RMB-based TRF products. Pay attention to the exchange rate in the take a single trend, the next direction to the yuan, the profit is limited! But the order back to the direction, the loss of the original price difference and then multiplied by the amount of the outer bar to defend the rain times. TRF regardless of the direction of the right or wrong must wait until the contract expires to end