Currency swap refers to the exchange of two funds with the same amount, the same term, and the same interest rate calculation method, but different currencies. It also carries out currency exchange with different interest amounts. . So are currency swap agreements risky? Read the article below to find out.
Currency swap is to hedge exchange rate and interest rate risks, mainly to hedge exchange rate risks. How to price a currency swap? There are three variables in pricing, namely the bond yield curves of both parties during the same period, as well as the current exchange rate and the outlook for future exchange rates of both parties. Stochastic processes will be incorporated into the complex mathematical pricing model. It is estimated that the China-Russia swap is not that complicated, and there are more political considerations than market considerations. Since this contract cannot be traded in the market, it has no market price, but it has an intrinsic value based on changes in exchange rates and interest rates. For one party, the value may decrease or increase. Currently, the contract value is shrinking for China.
Suppose that when the contract was signed in October, 1 RMB was exchanged for 7 rubles. This exchange rate was used as a reference for the agreement. We paid 100 million RMB and he paid 700 million. ruble. (If the contract were signed today, it is estimated that the negotiated price would be 100 million yuan to 900 million rubles). Therefore, the value of this agreement to China is currently decreasing. At this time, according to the agreement, Russia has the right to demand swaps at an exchange rate of 1 RMB to 7 rubles, and provide loans to Russia's Russian-Chinese trade importers, helping Russian businessmen to lock in the risk of depreciation of the ruble against the RMB exchange rate. Since you have signed a contract, you must implement it, otherwise it will be a breach of contract. Assume that the RMB interest rate agreed upon at the time of signing is 1%, and the RMB interest rate is 5%. Due to the replacement, we are responsible for the 5% RMB interest rate, and the Russian side is responsible for the 1% RMB interest rate. If the agreement states a fixed interest rate, the payment will not be affected by changes in market interest rates. We pay 35 million rubles in interest every year, and he pays 1 million yuan in interest. When the contract expires, we will pay him a principal of RMB 700 million, and they will pay us a principal of RMB 100 million. The possible loss now is that the 700 million rubles are not fully received, so the direct loss is that according to the market price, 100 million yuan has far exceeded 700 million rubles, and can even reach 900 million rubles, of which 2 The price difference between 100 million rubles and 100 rubles isdirect loss. Or if you don’t exchange it after it arrives in your account, you will still suffer the above losses.
Some people say that if you exchange it after three years, there is no guarantee whether the loss will be offset, because the market is always changing. Assuming that the ruble returns to 1:7 against the yuan in three years, if the ruble obtained now is used, it will cause permanent losses. The above assumes that both parties are rational people, the swap is for use, and there is a pricing mechanism for exchange rate and yield. If both parties are not economically rational people at all, the swap is not for use, and there is no accurate pricing mechanism based on exchange rate and yield. , the god doesn’t know whether this contract is a profit or a loss.
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