April 2013 Vol. 2 - No. 3
A NEWSLETTER FROM enterprise BUSINESS BANKING
DFM's meteoric rise Events and Promotions 2000 1950 1900 1850 1800 1750 1700 Presenting 1650 1600 Islamic Banking 2-‐Jan-‐13 9-‐Jan-‐13 3-‐Apr-‐13 6-‐Feb-‐13 6-‐Mar-‐13 16-‐Jan-‐13 23-‐Jan-‐13 30-‐Jan-‐13 13-‐Feb-‐13 20-‐Feb-‐13 27-‐Feb-‐13 13-‐Mar-‐13 20-‐Mar-‐13 27-‐Mar-‐13 products from OPPORTUNITY Bulletproof foreign SME opportunities in The Japanese yen Gulf investors pick and Mohammed Abdul Rahim Business Banking exchange hedging the GCC transport and revolution choose in Egyptian real Al Fahim: The simple man logistics sector estate market of luxury
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News update An investment better than gold Safe. Convenient. Sensible. >> Dubai airport passenger numbers up 11.4% in February >> Dubai gears up for next, more modest boom
>> Consumer spending in UAE to reach AED677bn >> Saudi economy rallies despite oil output drop
>> Dubai World Central airport eyes 25-30 passenger airlines by 2015 >> 10 UAE start-ups to watch
>> UAE prepaid market to reach AED66bn in 2015 >> Demystifying cross border payments for SMEs could boost UAE trade flow with China
>> UAE remains largest market for imports in Arab world >> Dubai rents go up further by 3 to 4% enterprise Vol. 2- No. 3
FEATURED
Bulletproof foreign will need to pay a supplier of washing choosing, but which must be between two For a small or medium-sized business, this exchange hedging machines EUR 20 million in September. pre-agreed forward dates. could result in wiping out the company’s net What do you do? Buy the euro today and Options are similar to outright forward worth, even from a single unhedged deal. Strategies to minimize risk, maximize gain and leave it on deposit? Or make a deal to buy deals, and are often used for the same “It is possible that using hedging strategies sleep better euro close to the payment date. Either way, purpose. However, the difference is that the marginally increases the cost of acquiring you run not just currency rate risk but also owner of an option has the right, but not currency. But look at it this way: buying By Dirk Flaherty interest rate risk,” Koestner said. the obligation, to exchange one pre-agreed insurance increases the cost of car- Most companies spend significant amounts currency for another at a pre-determined ownership; does that stop us from insuring of money tracking forex rates in an effort exchange rate by or on a specified date in our cars? Hedging is an effective insurance to minimize the cost of buying currencies the future. In many ways, an option can policy, so to speak, and should not be to pay for imports. Often, they forget be compared to a traditional insurance discounted simply due to the cost.” policy. Just as a company pays an insurance that whatever buying decision they make At the same time, outsourcing your hedging premium to insure its buildings against fire, is subject to market risk. A mere 0.01 requirements to a reputed and large so it may pay an option premium to protect change in the rate could result in a loss of financial institution often works better itself against an adverse movement in an thousands, if not millions, of dollars. than trying to meet them in-house, “unless exchange rate. Koestner recommends that after a decision you’ve employed a couple of geniuses who Exotic Options enable market users exposed on “when” to buy – spot or forward – a require no sleep”, he said. to the risk of adverse rate changes to hedge Making currency-buying decisions in a company also uses hedging methodologies Also, he recommends companies choose the their risks more precisely. This makes it country that imports a large proportion of that minimize rate risk. These could include institution with care. “Look for high levels possible to purchase opt