Beruflich Dokumente
Kultur Dokumente
Yen Financing
Agenda
Currency Risk
Company Background
Disneys Dilemma
Potential Solutions
Disneys Currency Swap
Swap Proposal Analysis
Recommendation
Currency Risk
Transaction Exposures
Start with a commitment to receive income in
foreign currency or to make a foreign currency
payment at some future point.
Translation Exposures
Economic Exposures
Arise when the trading position of a business is at
risk to adverse movements in exchange rate.
Company Background
Founded in 1938
Diversified international company
Lines of operation:
Entertainment and recreational complexes
Motion picture
Television features
Developing community real estate projects
Consumer products
Disneys Dilemma
Small
Large
Risk averse
Risk is
unacceptable.
Taking hedging
action.
Either
Partial
hedging of
some
exposures
Encourage
exposures
where
possible
Or
As much
hedging of
exposures
as possible
Risk neutral
Take no hedging
action.
Potential Solutions
Four types of typical hedging solutions:
Currency options
Forward contracts
Future contracts
Currency Swap
15 billion 10 year bullet loan
Currency Options
Forward Contract
Advantages
Avoid adverse movement
Negotiable for the size & term.
Viable for Disney to hedge royalties for 10 years.
More flexible than SWAP agreement because contract is
renewable each year. (Assume buy forward every year)
Disadvantages
Limit the upside potential
Obligation, commitment
Credit lines would be tied up
Default risk
Future Contract
Advantages
Standardize contract size
Marking to market
High liquidity and easy to close position
Can be traded in smaller amounts
Do not affect the credit line
Disadvantages
Commission
Cash deposit must be paid as margin
Not easy to customize
Short periods only
SWAP
Advantages
Off balance sheet.
Parties could customize the terms
Right of offset clause
SWAP would enable what parties cant get directly from
capital markets.
Disadvantages
Pay fees and expenses to intermediaries.
Parties may not engage in perfect hedge.
Advantages
Disney would be able to hedge for 10 years
Based on Japanese long-term prime rate
Disadvantages
0.75% front-end fees
More expensive than SWAP
Balloon payment at the end of period wont be good
match for Yen royalties
Lump-sum payment may create sudden jump in debt
ratings
SWAP
Yen
ECU
Yen
French Utility
Walt Disney
ECU
Walt Disney
French Utility
Yen
ECU
Disney
Disney
6.89%
French Utility
French Utility
ECU
YEN
7.61% YEN
9.37%
ECU
6.83%
9.19%
Our Recommendation
Q&A