The Hedge That Ran Too Long
An exporter asks to lock in three years of its currency, the desk wants the trade, and each seat has to say where the risk actually goes.
Banking Seat File No. 2 — Trading · Market risk · Treasury
SEAT FILE · FREE WHEN YOU SUBSCRIBE
PDF · 10 PAGES · ONE CASE · FREE
One address. The file comes in the welcome letter, and every letter has a one-press unsubscribe.
// THE CASE
A New Zealand winery earning about US$22M a year in US dollars asks the bank to sell forward 80% of its forecast receipts for each of the next three years — US$52.8M, at a rate its finance director calls historically favourable. Its board's policy covers twelve months. The markets desk is keen: it is the largest client trade of the quarter.
THE QUESTION
Is this the right trade, what does the bank still hold once the desk has hedged it, and what would you offer instead?
WHAT EACH SEAT IS ASKED
- Trading and sales: Is this the right trade for the client? What would you offer instead?
- Market risk: Once the desk has hedged it, what risk is left, and when does it peak?
- Treasury: What does the trade cost the bank in cash, and who should pay for it?
The worked answer — and the ninety seconds you would say out loud — are in the file.
// WHAT THE TEN PAGES CARRY
- What these panels are testingThe one instinct the seats' interviews listen for, and the three signals they grade.
- The caseThe file as it lands on your desk: the setup, the numbers, and the question each seat is asked.
- The worked readThree pages: what actually happened, how each seat records and answers it, and what not to accept.
- What you would sayThe answer in ninety seconds, spoken in the order a senior person in the seat speaks it.
- Three curveballsWhere the interviewer goes when the obvious case is answered, and how to respond.
// WRITTEN FOR THESE SEATS
Each seat’s page says what the job is, who arrives in it, and what its interview asks. Its practice paper is in the Exam Hall.
The businesses, the people and the figures in this file are composite and fictional; they do not describe a real business, transaction or bank’s policy. Practice, law and regulation vary by institution and jurisdiction.