FX RISK MANAGMENT; ; ZERO COST COLLAR
At the SPOT USD/TRL rate of 5.50, if we would like to buy USD 100.000, we have to pay 550.000 TRL.
If we need the USD 100.000 3 months from now and worried about a devaluation, we may conduct aZERO-COST COLLAR transaction with a bank (with a bank where we have sufficient credit limit)
We request a array数组 for USD/TRL for a specific date 3 months from now
Bank makes a quotation, for ex. 5.70 - 5.80
When we agree this array, we conclude a ZERO-COST COLLAR agreement with the bank
If at that date, the USD/TRL is 5.90, the bank has to sell USD at 5.80, but if the USD/TRL is 5.50 then we have to purchase at 5.70
If on that date, USD/TRL is within the array, then we purchase at spot rate