Note to*. M F Broughton Esq
CC: R L Desmond Esq
G J Smith Esq
F. B.
RTD I z " -3-
kmd.p
Brown & Willismson have forecast not Was to Japan dudW 199 1 of approxkmt*
US$200m. For plonning purposes. they had forwAn an evorage exchange raw of JPY1 40.00
compared with to overage rato for the firm WN of 1990 of JPY 148.0.
The US Dollses poor performance of recent manft, coupled with strong copital Wkwa
k" jap" hes. resulted In a shorp appreciation of to Yon allowing S&W W cover tm*
fmcm flows wM BA11F a an - va Be spot rate of JPY1 3 1.0. While this has bdW In
a walk of approvimstaly US$13m va Wdom we had expressed ourc a - , about the
An -n C exposure 1, ki to 110am this sg*k- OK is to say the impea an O&Ws
pmftobft w*w abSw to, m a o P In ** japavose madw should the Yon cwv*w to
approalm slo-dric"Ov, been *AM levels. It Woo for to that it woo omw Vs-b'".
Ourt BATIF would sat so a doebw counowpwtv ftt N go Yon Was underulcon, and
would Ow rawap go ftaultlinp position an an ongoing bools in ordw to the
awall mum for OW Group.
Initially. B&W had a* souqM to RquMM si ou i one-#*d of thok total pooldon
(USMAna at a we rate of JPYi 32.35. MATIF in turn covered arvind 30% of we
exposure. ', F" o in a pr4dk of US*380,70D sind stol k! a not position of sWo*nMWy
US"5.3m. Subsomotoly, D&W dwk1lod to cove to bslw= of *o* toraost exposure at
the then emm am am of JPY130.35 and soM * fwVw *11 35.Om worth of Yon to,
BATIF. Ibis gave OATIF a totol p"ItIon of approAmately US$180.3m.
Given the room vob*W in ft exchangm coupled with Ow throst of an escolatim in
do Gulf confilm It was i Pvdant to reduce BATIPs overall position to wound
US445m BATIF woe " to cover the bolorm. Waiting In on additional pmft of
US$434,300.
The Yon tm continued to appreciate rapidly wW the oppomx*y hms been taken to fur9w
reduce BATIPs puldo while bdft In an additional profit of US$2.572,026. This
gives an overall! pro& to dese of US*3-M7m sind BATIF Is now fully covered.
We now bellm thot: the Yon has become significarttly overbought and Ow there could b* a
todirkal correction to the JPY1 29-130 was. W* we also concerned Ow any "Collalon
of the Guff milk would also adversely offect to Yon in to short tom. Nsvwdw
Isse, we believe ** Yon WX tmotte its upward tread. after this correction, with a Iong
term obbK-Vv@ofJPY11S-120. Accon*o*,itinewrommmwA&tianthost4m=no
of the position Is reinstated otter such correction in awticipation of these fwftr
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Although the management of this exposure remains related to the economic exposure of B&W
with regards to their sales to Japan. SATIF can only view the exposure as a short to
medium tem trading position as the underlVing trade mernsins with S&W. Having generated
a total profit of US$3.367,000 BATIF row has a d"m of W*LWo to any potential
downsids risk associated with now position Wm in the, marlurt. It Is also worth noting
that by virm of the activity so far, BATIF has intproved BLWs effective position by
approxinistely JPY2-0 to mouind JIVY129.0 although this additional bwwft riernsins with
RATIF. The fact that this gain lea within BATIF as opposed to S&W results in a
reduction In the tax charge to the Grow on this pin of around US$540,000.
While in the first instance we belim it would have been preferable for S&W to retain at
least a portion of their exposure, say ons-third, especisly given the fact that *say had
bmm able to lock in a #*Wmnt amin versus their forocast. we syrapathise with their
keenness to rid thwnselvas of go obvious anchanp risk. Nevertheless, they now have a
pow" scormok expm" that my  their ability to cornpm in the Japanese
ma*u In forthcornino nmft should the Yen continue to svenothen. it would be
unrealistic to expect BATIF to islem am the whole of this econornk risk on their behalf
wrdmn estsiblishWo a dynamic hadolno/dagno programm which would allow the exposure
to be menaced on an orwoft basis.
Accordingly, it ja -- that BATIF be 9iven authority to actively trade up to
wwdft of tho Yen value of B&Ws total exposuire of JPY26.0 billion (US$200rn) for 1991
on the following to., :-
a) BATIF may have an open position long of up to JPYS.Sbidion vs the Dollar.
b) BATIF may not, under any cirmnistances, run a short Yen position.
c) Stop-losm we to be applied in order to ensure that any Potential Ion Is limited
to not nwe Own US$2 million.
dl A Performance report detailing the currw4 position on profitAoss status position
would be provided to the Group Treasurer and Dqxjty Group TreaKew on a daily basis.
@I A perforrnance, report dealing to current position on pmfttAm would be Providled
in the weeldy now to to Rnence Director.
DON I HOPE
I ft Octdor 1990
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