Trading strategy - sample 1-1-2 PDF

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Download Trading strategy - sample 1-1-2 PDF

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TRADING STRATEGY Primary Strategy Our primary objective was to raise ￥ 22.5bn Yen and €420m Euro with a starting balance of $750m USD (at the time of trading valued at $1, 011,736,139 AUD see figure 2). Our first step will be to establish what currency each bank and corporation are trading, this will be carried out via inquiries into each participating bank and companies’ rates. In order to collect data on what currencies they will be buying or selling. Through our initial calls we hope to established prices that counterparties are willing to take, by purposely asking the banks and corporations who were selling Yen and Euro for quotations several points below the current ask price. From here there will be price negotiations will only be accepted if the price is within our loss minimisation strategy. We will then take notes of which tables will be the most flexible with prices. With this information as well as our list of what each table was selling, we will compile a chart to indicate which tables will be the priority trading partners to achieve our objectives. More so there will be a rating system based on each table on how well they match our desired trading criteria. The data gathered will allow us to ensure that time is being spent most efficient by only enabling us to call tables which sell our required currencies and were willing to negotiate to a suitable price. With our list established we would set out to achieve our primary goal by selling twenty-two lump sums of twenty million USD for Euro and purchasing eleven lump sums of two billion Yen. We agreed not to accept any more than two points below the ask price which could occasionally be difficult, but will assist in allowing us to minimise losses on currency exchange which in our case will be inevitable.

Our Secondary objective involves using $400m worth of Australian Dollars to invest into the Pound. The company must speculate on future movements of the Pound against the Australian Dollar, using market view information as well as putting strategies in place. As previously mentioned the British Pound has been impacted by the April political announcement, which has creating a very volatile environment for the currency. This being said due to British interest rates being relatively higher than Australia’s, along side Australia’s current property boom and other fundamental currency influences. We predict that there will be quite a bit of volatility in the GBP relative to AUD over the next few months, however this will occur whilst the pound on average strengthens, particularly post election. Multiple spot FX deals of AUD in exchange for GBP will be carried out early in the session in order to hedge against later currency exchanges. The spot deals will involve purchasing of Pound in exchange for up to $200m Dollars, the price of these deals must be at least 2 points above asking price to minimise loss. These deals will be mixed with forward exchange deals to ensure we lock in the current rate as we expect the Pound to appreciate against the Dollar and hence our investment will gain value over the next 3-6 months. However due to the aspect of volatility in the Pound, $200m Australian will be set aside to be utilised in June days prior to the election. This

is in the hope that political controversy before the election will cause the pounds value to drop slightly against the dollar, where we will then exchange between $100-200m AUD to Pound. Once the election takes place investors will gain stability and confidence and invest back into GBP, spiking its value similarly to the quick appreciation of GBP/AUD when the election announcement was made in April. Enabling our organisation to increase the value of its currency portfolio and take advantage of Pound speculations.

As we forecast that GBP will devalue against USD while the USD gains value against VND in the next 6 months, our plan is to go long for for USD and go short for GBP. However, there are some certain risks you have to consider. Firstly, there is a liquidity issue when the bank spends a large amount of VND and GBP to buy USD. It can lead to a shortage VND and GBP in the later days. It is not very risky to hold a large amount of USD since the US dollar is the most liquidity currency. Hence, HSBC needs to consider the available capital of VND and GBP during each trading day when setting the quote. In addition, we may suffer from the loss if the currencies do not move like the way we forecast, especially the GBP. Therefore, we suggest to trade a small amount and square our position quarterly. The specific risk management plans for each trading currency will be described in each strategy below. We can enter the future contract to eliminate these risk and loss. Future contract, however, are beyond the scope of this plan. The bank can do a further research on it....