HSBC launches first taka-dollar derivative
HSBC has launched the first taka-dollar option in Bangladesh to help customers manage the risks of future foreign exchange in a volatile market.
The foreign bank has already transacted two US dollar-taka options for Viyellatex, one of the largest garment exporters, and Coats Bangladesh, a leading supplier of yarn and raw materials.
This derivative helps exporters and importers hedge their forex exposures effectively, Tarique I Khan, head of global markets of HSBC, Bangladesh, told reporters at the launch of the product at Dhaka Sheraton Hotel yesterday.
Futures, swaps, forwards and options are examples of a derivative, a financial arrangement that has its value determined on the price of an asset or rate.
“In some cases, an option is better than a forward deal," Khan said.
An option deal is a future agreement where the seller (bank) is obliged for a certain period, but the buyer or customer has an option, not an obligation. In a forward deal, both the buyer and the seller are obliged.
There is a range of prices of the taka against the dollar quoted in the two option deals, HSBC declined to disclose the prices.
“If the dollar moves beyond the rate a customer has hedged, he can exercise his right. If the rate moves in favour of the underlying forex exposure, the customer can only benefit up to a certain level,” he said.
Khan cited an example saying that if a customer is an exporter, he is vulnerable to the depreciation of the dollar against the taka. So an exporter will want to protect him from a falling USD/BDT rate, but is likely to benefit from appreciation.
Similarly, a bank quotes a lower rate accepted by a customer in an option deal, Khan said.
An importer who is to buy in future will also face the risks of a rising dollar, but will benefit from depreciation.
Earlier, HSBC had launched some non-BDT forward deals, such as USD/JPY, EUR/USD and some commodity hedges (cotton and wheat).
“So it is not difficult for us to offer these products after the local regulation allows it,” Khan said.
Customers also sounded upbeat about the benefits of the new product.
“We think the option will be helpful for us,” said Rahmotullah Khondoker, chief financial officer of Viyellatex that exported over $100 million worth of garment products last year.
Bishnu Pada Saha, management accounting manager of Coats Bangladesh that imports on an average $2-3 million worth of goods, echoed him.
“We expect this trade will create a positive impression among potential foreign investors,” said Mohammad Wahiduzzaman, head of corporate sales, global markets of HSBC, Bangladesh.