₦airaland Forum

Mcowubaba:
Wetin bring APC for this matter....
Are some of you people structured to be crazy

amakenny:
A situation deliberately created by blood suckers at highest level to make Abia people kill themselves.

How could a judge of good intentions give a sudden judgement, with little or no preliminary hearing:

make judgement cancelling the will of hundreds of thousands of voters,

give orders to immediately swear in a person who Abia electorate did not know,

little or no room for appeal,

.
Where are those people who daily lecture Igbos to try to elect their true representatives to present Igbos case to Nigeria?

Ikpeazu annoyed the harbingers of the blood of the dog and the baboons when Abia House kicked against idea of cattle grazing fields, when he raised Baksssi Boys unit after Fulani killed one man in an Aba abattoir.
They went and dusted a useless case to oust Ikpeazu.

elopee3000:
ur funny is not from the same ND the crude will come from ? Or is dangote going to refine lagoon water ,my friend if there is no peace in ND this refinary is as waste as national stadium lagos so dont mock ND people yet we pray for peace but stop insulting ND people

SeverusSnape:
Nice one from the senators, Chase the dullardic aide out, Let him run out faster than a rocket!

Let the Attorney General come by himself, and if he misbehaves, walk him out too.

Bunch of executive touts!... How dare they threaten the legislative arm and their principal officers (Saraki and Ekweremadu)?

Firefire:
How do you mean, hedging against Naira risk?


If you understand the challenges and tension in the market, you will see clearly that manufacturers are not talking about hedging for the future risks but sourcing FX to pay their foreign suppliers to restart or continue their production.

Understanding CBN OTC FX Futures
How It Works

The Naira-settled OTC FX Futures (FX Futures) is an exchange traded foreign exchange (FX) price
hedging derivative transaction where the physical exchange of foreign currency at expiry is
replaced by net settlement between counterparties of the spot price differential. The spot price
differential is calculated as the difference between the FX Futures rate and the NIFEX1
Spot Rate
prevailing on the futures expiry date. The net settlement occurs in the local currency, the Naira
(NGN).
Settlement amount = (NIFEX Spot Rate – FX Futures rate) * Notional USD Amount
Every FX Futures transaction is a contract between a buyer (e.g. an importer) and a seller (e.g.
GTBank/CBN); both called “Parties”. The contract defines the USD notional amount being traded
(e.g. $3,000,000), the agreed FX Futures rate (e.g. $/₦250) and the expiry month of the contract
(e.g. Dec 2016).

Under an FX Futures contract, there will be no exchange of principal (USD and NGN); but each
Party will be required to post collateral (also called ‘margin’) to secure its obligation to the other
Party. The margin required per FX Futures transaction is dependent on the risk rating of each
customer and the notional amount traded. A Futures transaction may also involve a commission.
At maturity of a futures contract, the parties are obligated to exchange an amount equivalent to
the net difference between the value of the notional amount at the futures price and its value at
the NIFEX spot rate. Since the NIFEX spot rate can fix higher or lower than the futures rate, the
party losing value is compensated by the other.

An FX Futures contract is a tool that enables companies/firms minimize their foreign exchange
price risk There is no actual delivery of USD between the buyer and the seller.

Example
XYZ Company imports pharmaceutical products from a Malaysian supplier at a cost of USD 3
million. XYZ Co. is invoiced and payment is due in Dec 2016. XYZ Co. sells the products locally and
receives NGN from its retailers. Thus XYZ Co. is exposed to exchange rate fluctuations between
when goods are sold and payment is due to the supplier.
To hedge its exposure to exchange rate movements, XYZ Co. buys a futures contract:

1 Nigerian Interbank Foreign Exchange Fixing. The NIFEX rate is a benchmark rate provided by the FMDQ-OTC
Securities Exchange through a fixing process. More information is available from its website www.fmdqotc.com
The document is for discussion purposes only and does not, in any way, represent a service commitment on the part of the Bank. The terms and conditions
under which GTBank shall provide its banking services shall be governed by a separate Engagement Letter and /or Agreement(s) to be executed
subsequently by both parties.
Contract Maturity: NGUS Dec 2016
Notional Amount: USD 3.0 MM
FX Futures Rate: $/₦250
Initial Margin: 15% of NGN Value of Notional Amount
Maintenance margin: 80%

XYZ Co. and GTBank will be required to exchange an amount equal to the difference between
futures rate of $/₦250 and the NIFEX spot rate at maturity, multiplied by the notional amount.
Since the contract does not involve the delivery of USD, the net amount will be settled in NGN.
Scenario 1: If at maturity the NIFEX Spot Rate is $/₦280, FX Futures is In-the-Money
If at maturity, the NIFEX spot rate fixes above the futures rate, GTBank will be obligated to
compensate XYZ Co. for the higher spot rate (this is the price hedge benefit to XYZ Co.). To settle
the FX Futures contract, GTBank will make a payment of NGN 90,000,000 to XYZ Co. The
settlement amount is calculated as follows from the perspective of XYZ Co.:
Settlement Amount: (280 - 250)*$3,000,000 = ₦90,000,000

Since XYZ Co. thereafter purchases $3,000,000 from the interbank market at the prevailing spot
rate (e.g. at $/₦280),
Cost of FX purchase = $3,000,000 * $/₦280= ₦840,000,000,
Effective cost of purchase = ₦840,000,000 - ₦90,000,000 = ₦750,000,000
… for an effective rate of $/₦250
XYZ Co. therefore benefits from the futures hedge despite the weakening of the NGN because it
is able to reduce the cost of buying the $3,000,000 by the settlement amount received under the
futures contract.

Scenario 2: If at maturity, the NIFEX Spot Rate is $/₦245, FX Futures is Out-of-the-Money
If at maturity the NIFEX Spot rate fixes below the futures rate, XYZ Co. will be obligated to
compensate GTBank for value lost as a result of a lower spot rate. Thus, to settle the futures
contract, XYZ Co. will make a payment of NGN 15 MM to GTBank on maturity date. The settlement
amount is calculated as follows from the perspective of XYZ Co:
(245 - 250) * $3,000,000 = - ₦15,000,000

If XYZ Co. purchases the required USD 3.0 MM from the interbank market at a spot rate of $/₦245,
its effective cost can be determined as:
Cost of FX purchase = $3,000,000 * $/₦245 = ₦735,000,000
Effective cost of purchase = ₦735,000,000 + ₦15,000,000 = ₦750,000,000
… for an effective rate of $/₦250
Thus, XYZ Co. is locked-in to a rate of $/₦250; which is comparable to the futures rate contracted.


Other Requirements
Futures Agreement
All interested customers will be required to execute a futures agreement with the bank before
executing futures contracts.
Margining Requirements
Customers will be required to post collateral funds (initial margin amount) in a margin account at
execution of a futures contract, and will also be required to top up the margin account if the value
of the margin cover declines by a prescribed percentage (maintenance margin).
For instance, in the above example, XYX Co. will provide an initial margin of ₦112,500,000, which
is 15% of the NGN value of the USD notional amount; i.e.
0.15 * (250 * $3,000,000) = ₦112,500,000
If the margin amount held reduces to 80% of its initial value, the customer will be required to
provide additional funds to ‘top up’ the margin account.
Associated Risks

The risk of loss associated with dealing in FX Futures contracts can be significant. Customers must
ensure that they adequately understand their responsibilities under a futures contract. In addition,
customers must ensure that the futures contract executed meets their hedging needs. Where in
doubt, professional advice should be obtained.
The following should be carefully considered before entering into a FX Futures contract:
The document is for discussion purposes only and does not, in any way, represent a service commitment on the part of the Bank. The terms and conditions
under which GTBank shall provide its banking services shall be governed by a separate Engagement Letter and /or Agreement(s) to be executed
subsequently by both parties.
a. Potential for Loss: Customers should be aware that a futures positions can result in
a loss. This loss is reflected in the net settlement paid to a counterparty when NIFEX
spot rate fixes below the futures rate.
b. Maintenance Margin Call: If the agreed rate under a futures contract deviates
significantly from the spot rate, there is a possibility for the Bank to request for
additional collateral funds to cover the customer’s margin account. If the
customer’s accounts are not funded for the additional collateral within 2 business
days, the Bank may overdraw the customer’s account. This could result in
additional charges.
c. Spot Price Risk: There is always the possibility that the customer may not be able
to source their FX requirements from the spot market at the NIFEX Spot rate upon
maturity of the futures contract. In addition, the customer might be unable to
source the full amount required as at when needed. Either of the above could result
in a loss to the customer.

Benefits of Futures Contracts
– Easily implemented for both future foreign payables and receivables.
– Minimizes impact of adverse fluctuations to currency exposure
– Currently available for period up to 12months
– FX Futures are moderately liquid and transparent foreign exchange hedging tools.
– Allows a client to keep allocated cash in its main operating currency until the time of
settlement, though the prescribed margin amount will be debited at trade date
– Margin amounts will be withheld from customer’s account at trade date and returned
upon settlement of the contract
An FX Futures should only be used where you need to manage the impact of currency risk on
eligible trade transactions; it should not be used for proprietary trading or speculative purposes.

Firefire:
"But at the end of trading yesterday, the exchange rate for the OTC FX Futures for one-month closed at N279/$1; while the two-month rate due for settlement on August 24 closed at N277/$; the three-month rate due for settlement on September 28 closed at N275/$, and the 4-month rate due for settlement on October 26 closed at N267/$1".

All the quoted prices here for either Future/Forward is lower than what I got from the banks, I hope someone is not playing games?

I got N280/$1 unspecified forward period (Max. of 60 days), while I got as high as N284/$1 for SPOT.

Okijajuju1:
[size=15pt]Having a logical and reasonable debate on Nairaland keeps getting tougher and tougher each day.[/size] Its like most of the Nigerians on this thread thrive in just being ignorant and the reach of their reasoning is pretty limited.

Yesterday so many people challenged the fact that there was actually a law against street trading in Lagos (and many other Nigerian State capitals). Now that the lagos state government has again reiterated that street hawking/peddling is illegal, the arguement is about if the hawkers should rather resort to being armed robbers.

Now the foolishness of this line of reasoning can be seen when looked at like this: So all unemployed struggling young persons in Nigeria are either hawkers or robbers. There is no other option to making money for the unemployed except to be an illegal street trader, A Criminal Armed robber or an illegal street begger. There is no other business one can do in this nation of over 150 million people to make money when unemployed with no money to make money... REALLY?!!!!

So to those of you on here holding on to this line of argument, this is it extent of the depth of your reasoning to making money when you are unemployed with minimal cash.


iGiveUp for the second time on this thread.. I really do.


#GodBlessNigeria&HaveMercyOnUsAll...

Peacefulgold:
U r very correct....but my pain is dat dis Kai officials r not actually doing dis job for d government but rather just looking for victims to enrich their pocket wit...let me give u an example..dis happened in oshodi...a pedestrian was about crossing d express wit out using d bridge and dis Kai official was just standing next to him,instead of d guy to call him back not to cross ,dat he should make use of d bridge dat he could endanger his life yle crossing d express ..he allowed him cross and immediately he crossed d first lane d guy went after him to arrest him...but d funniest part was dat d Kai officially in thinking only about d money he was going to get from d offender almost got hit by a car yle crossing....so d point is if really dey have safety of d citizens at heart..dat Kai official would have prevented dat man from commiting d offense but instead he allowed him commit it so he can arrest him and extort money from him.....dats too bad...

Nigerians, we go to foreign countries and obey their laws (we even obey more than required sef ), but when we are in our own country, we flagrantly disobey laws.

alubert4real:
If I may ask, what is illegal about trading compared to public funds stealing and embezzlement when there are no jobs for the so called traders? The best thing to do is to get them off street trading through empowerment and job creation, not by arresting and putting them black marriers to later extort money from them and later chasing them till their death. This is just to bad from Lagos State.

Peacefulgold:
So easy to say #5000 fine or 3months imprisonment....as if dats wat they would have done if d boy was caught...I've seen dis wicked KAI people work....every goods confiscated from u whether worth a MIllion naira is gone for good...dats y they prefer to run with their goods Dan wait to b caught....though street hawking is prohibited in lagos as d law says....but u need to beta dis peoples lives by giving Dem jobs and not just witch hunting Dem for ur own(KAI) selfish pocket...may d boys soul RIP....

Okijajuju1:
Uncle,

What about the risk of getting hit by a moving vehicle associated with street/highway trading? Has that thought crossed your mind?

What about the environmental pollution impact?

The fact that criminals masquerade as hawkers to commit crimes in traffic ranging from robbery to snatching purses, etc?

Your comment on armed robbery is just too shallow. So if they are not hawking (which is illegal), the only other means to make a living is Armed Robbery (which is not just illegal but actually a multiple criminal offense). There is not legal job option apart from these two abi? Or you forgot to add 'Begging' as option number three.

Like seriously!! This is the only thing you can think of as an alternative to street hawking?


I give up..

DEAFandDUMB:
One party system is all you people are glamouring clamouring for , abi?

APCZombieMod:
Useless bloody Politicians everywhere.....they have no shame nor idealogy!!!!

POLITICAL PROSTITUTES THEY ARE!!!


Once again...Thanks to that partisan APC Zombie Mod that banned me for curing an APC Zombie from Zombeism. You think you are doing me, you are doing yourself
APC Zombies will insult us and the Zombie Mod won't do jerk, but when we return the insult, they cry like babies to their Zombie Mod.

Tell the Zombies if they can't stand the heat here, they should quit

OjukwuWarBird:
YORUBA

Lamasta:
It is an INSULT to my CITIZENSHIP when my PRESIDENT accepts that I am FANTASTICALLY CORRUPT Becaause of some bad examples, do you know the implication of that on your passport when you leave the shores of this country?

CSTR6:
Sovereignty is a long game. Political office in Nigeria is a temporary aim atleast to secure our interests in Nigeria.
If your president decides to grow a brain and restructure the country, then maybe,just maybe, the push for ]sovereignty may be suspended .

goodvision12:
oga lootman e be like sey yu like quarrel pass fight.Free this guy na .If no be for op this guy for don comot blood for your mouth.

kettykin:
I would have told you my mind but for the mods in this bulletin who choose to show emotions over people's expressions, so I leave it at that

kettykin:
The Nigerian military can as well go ahead and starve Cameroon to get back bakassi peninsular.
This just confirms that without the sabotage of farm lands in the east and the support of Britain and Soviet Union military Nigeria would have lost the war to a smaller biafran army.

SirVintageCock:
I[s]t is not warped thinking since they are not in prison. They have rights to agitate for what they want.[/s]

MrSly:
ignoramus, everything in life has law. Using starvation and killing civilians during war is crime not tactics.

kettykin:
The type of military that would resort to using hunger to starve millions to death disturbing unarmed protesters.
Sometimes I just believe the black race is cursed