Forex

Currency Risk Protection in VIOP

Futures Contracts are to obtain the economic or financial product traded on the capital markets under the VIOP, the foreign currency or the precious metal in a certain amount of time. The specific price and the economic or financial indicator of a certain amount and nature, the capital market instrument, the property, the precious metal. And the foreign currency. are the contracts that give the obligation to sell.

When trading in VIOP. Traders can buy and sell at the same product with the same standard features with a low margin of several times the value of their money. As the second trading market of the futures market exists, if the prices do not occur as we foresee, we can close the current position by taking a reverse position.

Currency Risk Protection in VIOP

VIOP transactions also provide protection against the risks that occur in foreign exchange prices for export and import companies.

Thanks to VIOP, the institutions have the opportunity to realize the payment or payment of the purchases made today from a price they can foresee in the future in order to avoid the exchange rate risk in export and import transactions. In this way, both cash assets can be directed to more efficient areas and possible exchange rate control is ensured.

If explained by example; The importer will pay the amount of 100.000 dollars on April 24th on 23 May. The fact that the dollar rises above the current level in 1 month constitutes the currency risk for the company. In this case, the institution can provide protection against the risk of rising of the dollar by taking position in buying direction in VIOP.

Position Opening

Position: Buying (Long)
Date: 24 April
Underlying Asset: USD / TL
Dollar (Spot): 4,10
Futures Contract Price: 4,40
VIOP 1 unit Contract Size: 1,000 Dollars
Since the 1-dollar contract is 1,000 dollars in size, 100.000 / 1000 = 100 contracts should be purchased for 100.000 USD. In this case, 4,30 x 1000 x 100 = 430,000 TL position is taken.
Collateral: 1 contract for 210 TL
As a guarantee, a guarantee of 210 x 100 = 21.000 TL is required for this transaction.
Leverage Ratio: 430,000 / 21,000 = 1/20.

Position Closure

Date: 23 May
Dollar (Spot): 4,90
Futures Contract Price: 5,35

If the import company had not performed the VIOP transaction, it would have used more cash in the spot market than the 0.90 x 100.000 = 80.000 TL cash deposit in the spot market due to the 4.90 – 4.10 = 0.80 exchange rate.
Due to the purchase transaction in the VIOP, it will have a yield of 0.95 x 1000 x 100 = 95.000 TL with a difference of 5.35 – 4.40 = 0.95. Moreover, this gain was realized by using the initial collateral of 21.000 TL.

Another example is the export company. On 16 January, the company sold $ 100,000 of goods and the collection period was set as 16 February. Exchange rate risk for the company is a risk when the dollar drops from the current level in 1 month. In this case, taking the position of selling in VIOP, protection against the risk of falling of the dollar can be provided. Currency Risk Protection in VIOP

Position Opening

Position: Sales (Short)
Date: January 16
Underlying Asset: USD / TL
Dollar (Spot): 3.80
Futures Contract Price: 4.25
Contract Size: 1,000 Dollars

Position Closure

Date: February 16
Dollar (Spot): 3.74
Futures Contract Price: 4,10

As a guarantee, a guarantee of 210 x 100 = 21.000 TL is required for this transaction.

If the exporter had not done the VIOP transaction, the spot market would have generated 0.06 x 100.000 = 6.000 TL less income due to the exchange rate difference of 3.74 – 3.80 = -0.06.

By trading in VIOP, it will have a yield of 0.15 x 1000x 100 = 15.000 TL from 4.10 – 4.25 = 0.15 difference by selling from 4.25. Thanks to this transaction, the exporter has protected himself against the risk of the exchan

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