In case you don’t know this yet, state-owned Development Bank of the Philippines (DBP) is offering forward foreign exchange rate protection under its hedging facility for exporters.
This is quite helpful of DBP president & chief executive officer Reynaldo G. David. At least, here is something concrete that affected sectors can do to mitigate the impact of the peso appreciation.
As of last week, handicraft manufacturers, aquaculture traders, those who are in the carageenan and garments businesses who sell to the United States, Europe, Japan, Chile and India are some of those who first applied for the facility.
How does it work?
Exporters enter into a forward contract with the DBP where they will specify a particular exchange rate for a particular period, say, one month from now, or three months from now. Only the net difference between the agreed dollar/peso forward rate and the market rate shall be settled at maturity. I saw similar schemes during the currency crisis of 1997 for exporters, at that time to protect them from peso depreciation.
DBP says there are no charges to be paid for the scheme. It also has a foreign exchange insurance product that protects the exporter just in case the peso suddenly depreciates. Under the second product, DBP will allow exporters to sell their dollars to DBP at a specified price on a specified date.
“Thus, in the event of peso depreciation, the exporter can sell his dollars at a higher rate on maturity date. If the peso appreciates, the exporter will be able to sell at the agreed protection rate to protect him from any loss,” David says.
Notional amount for both programs is at a minimum of $10,000, with terms ranging from one to three months for FX insurance, and one to twelve months for forward FX rate protection.
DBP and the exporter will determine the forward rate, which will be calculated based on the interest rates of the peso and the dollar, the amount, and the tenor of FX cover.
I am still waiting for the DBP to come back to me with their latest figures on the take-up of this facility among exporters. Stay tuned!
July 7th, 2008 at 6:56 pm
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December 29th, 2007 at 5:16 am
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December 11th, 2007 at 6:04 pm
i’m part of the garments industry as a sub-contractor… frankly, this hedging facility is a bit too late… the export industry has been asking for help regarding the peso appreciation since early this year.
as a matter of fact, at least five of our biggest clients have already relocated to other countries, more specifically Vietnam, due to very enticing investment packages that the Vietnamese government has been danggling….
just to give you an idea as to how big our clients were… each of them has at least 5000sq.m. of production facilities exclusive of satellite companies….
also, as my personal experience, our previous sub-contracting orders consist of 80%export, 20%local…. but starting this year, it has already reversed!!
it may be worse by next year!