Protecting The Baht Value Of A Us Dollar Contract.

[roderick17]

Greetings All

I will soon accept a job offer to work in the Middle East, for the net twelve months. Under this contract, I will receive about $150,000 US dollars for the year spread over monthly installments. My guess is that the US dollar will weaken against the Baht over the next twelve months, so I’d like to protect the baht-equivalent value of my contract - right now! To do this, I plan on taking out a US dollar denominated loan for $150,000 and then immediately converting the proceeds to Baht at today’s exchange rate.

I will then pay down my loan by applying the dollar—payments, I receive each month, against the outstanding loan. As I haven’t set up a deal like this before, I’d really appreciate any advice you have on the benefits and possible pitfalls of such a scheme.

Roderick

[Soutpeel]

Greetings All

I will soon accept a job offer to work in the Middle East, for the net twelve months. Under this contract, I will receive about $150,000 US dollars for the year spread over monthly installments. My guess is that the US dollar will weaken against the Baht over the next twelve months, so I'd like to protect the baht-equivalent value of my contract - right now! To do this, I plan on taking out a US dollar denominated loan for $150,000 and then immediately converting the proceeds to Baht at today's exchange rate.

I will then pay down my loan by applying the dollar—payments, I receive each month, against the outstanding loan. As I haven't set up a deal like this before, I'd really appreciate any advice you have on the benefits and possible pitfalls of such a scheme.

Roderick

...My advice...dont bother....the US$ will not weaken against the THB, in fact if anything it will be the other way around...

Also, you are taking out a loan to do this...you know you have to pay interest on a loan dont you ??...

[Naam]

Greetings All

I will soon accept a job offer to work in the Middle East, for the net twelve months. Under this contract, I will receive about $150,000 US dollars for the year spread over monthly installments. My guess is that the US dollar will weaken against the Baht over the next twelve months, so I’d like to protect the baht-equivalent value of my contract - right now! To do this, I plan on taking out a US dollar denominated loan for $150,000 and then immediately converting the proceeds to Baht at today’s exchange rate. but it has do be done in a lump sum. forward deals are not done for peanut amounts of $12.5k.

I will then pay down my loan by applying the dollar—payments, I receive each month, against the outstanding loan. As I haven’t set up a deal like this before, I’d really appreciate any advice you have on the benefits and possible pitfalls of such a scheme.

the pitfalls are that it is are hare brained scheme because it will cost you money by paying interest and there is no way to forecast how THB will fare vs. any currency. the elegant way is to sell forward your USD vs. THB which is presently not only free of charge but rakes in a little profit due to the interest rate difference.

ask your bankers whether they provide that possibility. if they do but can't explain the details come back and i will explain.

[thaihome]

I believe most knowledgeable forecasters are expecting the baht to weaken as the BOT lets the baht gradually weaken in order to help the export markets (Which drive the Thai economy).

In addition to the interest on the loan, you could lose upwards of 10% of potential gains in the FX rate over the next year.

Not even going to address how you would get or what the interest rate on what is apparently an unsecured loan for $150kwould be as that is your private business.

TH

[meom]

What you gonna do when the Company give you 30 day notice and terminates your contract after a few months?

[lannarebirth]

Greetings All

I will soon accept a job offer to work in the Middle East, for the net twelve months. Under this contract, I will receive about $150,000 US dollars for the year spread over monthly installments. My guess is that the US dollar will weaken against the Baht over the next twelve months, so I'd like to protect the baht-equivalent value of my contract - right now! To do this, I plan on taking out a US dollar denominated loan for $150,000 and then immediately converting the proceeds to Baht at today's exchange rate. but it has do be done in a lump sum. forward deals are not done for peanut amounts of $12.5k.

I will then pay down my loan by applying the dollar—payments, I receive each month, against the outstanding loan. As I haven't set up a deal like this before, I'd really appreciate any advice you have on the benefits and possible pitfalls of such a scheme.

the pitfalls are that it is are hare brained scheme because it will cost you money by paying interest and there is no way to forecast how THB will fare vs. any currency. the elegant way is to sell forward your USD vs. THB which is presently not only free of charge but rakes in a little profit due to the interest rate difference.

ask your bankers whether they provide that possibility. if they do but can't explain the details come back and i will explain.

It seems to me the OP should be looking for a defined cost "insurance" policy. The best I'm aware of are options on currency futures contracts. The benefit of options is, if you're wrong, you know what your costs will be in advance. I'm not familiar with "forwards", but I have the sense its something very similar. This isn't a hedge I would undertake at this time, but you never know.

[Naam]

It seems to me the OP should be looking for a defined cost "insurance" policy. The best I'm aware of are options on currency futures contracts. The benefit of options is, if you're wrong, you know what your costs will be in advance. I'm not familiar with "forwards", but I have the sense its something very similar. This isn't a hedge I would undertake at this time, but you never know.

the effects are indeed similar but the procedure is much more simple as you don't buy any paper and therefore there is no capital, except credit worthiness, necessary.

hedging $150k vs THB looks like this:

-sell USD at bid minus bank fee vs. THB at ask plus bank fee minus interest rate difference one year

as the interest rate for USD is presently considerably lower than the one for THB (i don't have exact figures at hand) bank fees as well bid/ask spread should not only be covered but there should be even a little profit left plus a wee bit interest the OP will get on his monthly payments accumulating in his account.

the minute you close the deal you know how many Baht and Satangs you will get on wednesday feb12, 2010 and you know your cost (if any). is the market against your bet you can at any time open a counter position with the same expiry date to limit any loss at a preset level you decide.

i prefer forward deals because of the simple procedure and mainly because i can deal 20 hours (depending on the amount even 24 hours) a day as opposed to my (timewise) limitation buying and selling options or futures. moreover, checking currencies is a breeze compared to checking the price of options/futures.

[Naam]

This isn't a hedge I would undertake at this time...

neither would i

[Kf6vci]

Well, to be honest, I would go short both, the USD and THB. The latter has a huge political risk, the former has a government whom I would not want to lend to at present interest rates. So why not find an alternative currency you trust more than these two?

[Naam]

Well, to be honest, I would go short both, the USD and THB. The latter has a huge political risk, the former has a government whom I would not want to lend to at present interest rates. So why not find an alternative currency you trust more than these two?

at first sight a logical conclusion but easier said than done. my question is "shorting USD and THB vs. what currency?"