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Managing risk

  • Managing risk

    Financial institutions now have a suite of instruments to hedge renminbi currency and interest-rate risks. Transactions on both the onshore and offshore renminbi foreign exchange markets now total over USD100 billion on a daily basis, including deliverable foreign exchange (FX) spot and deliverable/non-deliverable FX swaps and options.

    As one of the most active participants in offshore renminbi foreign exchange and a registered dealer on the mainland, HSBC gives financial institutions a complete set of risk management instruments.

    CNH deliverable market

    Offshore, HSBC quotes deliverable FX swaps up to two years and FX options up to five years with further tenors available on a case-by-case basis. Liquidity has risen significantly with daily turnover of USD17 billion for FX swaps and USD2-3 billion for FX options. HSBC also offers renminbi cross currency swaps, liquid up to five years or maximum tenor of ten years.

    CNY non-deliverable market

    HSBC offers the onshore investment (CNY) non-deliverable market which predates liberalisation of the renminbi. While non-deliverable instruments sometimes remain cheaper, the prices of deliverable instruments are converging rapidly as usage develops and are increasingly the tool of choice for hedging renminbi volatility. Daily volumes of non-deliverables are estimated at USD2-3 billion, including swaps and options.

    Onshore foreign exchange

    HSBC serves financial institutions who wish to transact on the onshore foreign exchange market – which has an estimated daily volume of USD75 billion – including swaps, options and spot. The bank also offers interest rate swaps with floating rate benchmarks based on the seven-day repo rate, Shanghai Inter-bank Offered Rate (Shibor) and CNY Depo.

    Note: Data above refers only to inter-bank market and all volumes are our estimate on inter-bank activities, as of March 2016 for onshore and February 2016 for offshore.

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