Citigroup FX Sales and Trading
Business Briefing Session
Fixed Income/Foreign Exchange
Victoria Taylor, Corporate FX Sales
Citigroup FX Sales and Trading
Where does FI/FX fit in to Citigroup?
Global
Consumer
Global Corporate
& Investment Bank
Private Client
Services
Global Investment Mgt.
& Private Banking
Cards
Corporate Banking (GRB) *
Investment Advice
Life Insurance
Consumer Finance
Transactional Services *
Financial Planning
PBG
Retail Banking
Global Equities *
Brokerage
Asset Management
Global Investment Banking *
Global Research
Global Fixed Income
Treasury
Futures
Global Rates & Currency
Credit Products
FI Sales & Research
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Securitization
NSSB
Citigroup FX Sales and Trading
Citigroup Foreign Exchange
CitiFX is the largest foreign exchange institution in the world
CitiFX handles approximately 10% of the world’s total FX market
volume
CitiFX offers its services to over 1,900 customers globally with a
presence in over 100 countries
CitiFX has over 325 foreign exchange professionals providing 24 hour
global coverage
CitiFX offers in-depth research, analytical tools and execution through
both traditional and e-channels
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Citigroup FX Sales and Trading
The FX Market

FX Market is the largest financial market in the world

Operates globally, 24 hours a day, 6 days a week

$1.1 Trillion turnover a day. By comparison, London Stock Exchange’s
average daily turnover is approximately $20 billion

Highly Liquid

Highly Transparent

Highly Efficient
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Citigroup FX Sales and Trading
Factors affecting the market
Events
Technical
Fundamental
Economic
Market
Expectation
Psychological
Interventions
5
Political
Citigroup FX Sales and Trading
Market Dynamics – The Players
Speculators
Corporates
Bank
Bank
Brokers
Bank
Bank
Central Banks
Investors
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Citigroup FX Sales and Trading
FX Trading Floor



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Sales Teams
–
Corporate
–
Investor
–
Leveraged investor
–
Banks & Central Banks
Trading Desks
–
Spot or cash trading
–
STIRT (Short Term Interest Rate Trading)
–
Options/Derivatives
–
Proprietary trading
–
Emerging Markets
Research Teams
–
Economics/Fundamentals
–
Technicals
–
Flows
Citigroup FX Sales and Trading
What does a Sales job involve?

Managing Client relationships

Market updates

Providing Trade/Hedging ideas to suit customer’s needs

Differentiate yourself from the competition

Position yourself to be the number 1 FX provider
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Citigroup FX Sales and Trading
Customer’s FX needs

Corporates
– Day to day business operations outside functional ccy
– Hedging FX exposure to minimise the effects of adverse exchange
rate movements

Leveraged investors
– Speculative - FX now perceived as an asset class in its own right

Investors
– Some speculative activity
– Managing the FX transactions generated by fixed income and
equity trading

Central Banks
– Stabilise exchange rates - either Support or Suppress
– Foreign Reserves Management
– E.g China
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Citigroup FX Sales and Trading
Example: UK Airline

Corporate customer

Multinational business with operations (revenues/costs) and assets/ liabilities
denominated in numerous foreign currencies

Hence, exposure to both Transactional and Translational FX risk

Transaction risk comprises commercial flows in foreign currency (costs and revenues) so
earnings are affected when exchange rates fluctuate

Translation risk comprises the translation effects on balance sheet items such as assets
and liabilities in foreign currency due to changes in exchange rates
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Citigroup FX Sales and Trading
Example: UK Airline

Primary exposure is to movements in GBPUSD as Fuel costs and Aircraft leases
denominated in dollars

xxx, therefore, have in effect a long sterling position, resulting in their earnings being
adversely affected by a depreciation of sterling against the dollar

e.g. xxx have $100,000,000 dollar fuel costs payable in three months

Therefore, in three months xxx must sell GBP / buy USD to pay the dollar denominated
fuel costs

xxx are exposed to GBPUSD movements since a sterling depreciation will have the effect
of increasing their costs in sterling, their functional currency
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Citigroup FX Sales and Trading
To hedge or not to hedge
a) Remain Unhedged - Sell GBP at the prevailing CABLE exchange
rate, three months from now, leaving them exposed to movements
during that time
In the last 3 months GBP required to buy $100,000,000 has been
between £52.4 million and £56.5 million. Fuel costs could fluctuate
by £4.1 million in a 3 month period
b) Hedge their Exposure - hedging is the process of implementing
protection for a present or future position which has exposure to
market price fluctuations
This involves locking in a forward FX rate today that will enable them
to buy USD at a known rate in 3 months time
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Citigroup FX Sales and Trading
What does a trader do?

Market making to Sales desks, brokers and other banks

Book running

A trader takes different proprietary positions:
 Directional trades, i.e. long or short the market outright
 Differential trades, i.e. difference between interest rates in two
different currencies
 Relative Value trades, i.e. trades where the 6 year price looks wrong
given where 5 and 7 years trades
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Citigroup FX Sales and Trading
Trading Principles
Position Taking

Traders may buy and sell currencies to generate a position (either long
or short respectively) based upon a certain view that the trader
possesses.
Position
Long
If the base currency
appreciates the position
will yield a PROFIT
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Short
If the base currency
depreciates the position
will yield a PROFIT
Citigroup FX Sales and Trading
Position Taking

The trader may either:
 allow a position created from a customer transaction to run i.e. the
trader will not immediately cover the position
 ask another bank for a price and hit it on the desired side to cover
his position
e.g. A customer sells $5m USDJPY at 119.41 to a spot trader. The
trader who believes the USD will appreciate will allow the position to run.
If USDJPY appreciates to 120.00 the trader has made 59 pips of
profit on $5 million. USD Profit equals (0.59 * 5m)/120.0 = $24,583.33
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Citigroup FX Sales and Trading
Role of a Structurer?

Works between the trader and the sales person

Identify new solutions for clients

Considers relative merits of different instruments given market
conditions and objectives

Checks component prices so that he can revert back to the sales
person with the overall price and the characteristics of what is going to
be marketed to the client

Always thinks about new ideas that “exploit” current market conditions
and/or help to achieve the clients goals

Peer analysis, what are similar sectors looking at?
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Citigroup FX Sales and Trading
How the market moves? US employment data
EUR=, Close(Bid) [Line] 1 Minute
04Aug06 04:33 - 07Aug06 14:39
Pr
USD
EUR= , Close(Bid), Line
07Aug 13:57:00 1.2871
1.29
1.289
1.288
1.287
1.286
1.285
EURUSD moved sharply higher after
soft US employment data on Friday
1.284
1.283
1.282
EURUSD rallied from 1.2775-1.29
1.281
1.28
1.279
1.278
1.277
1.276
06:00
17
08:00
10:00
12:00
14:00
16:00
18:00
20:00
19:00
21:00
23:00
01:00
03:00
05:00
07:00
09:00
11:00
13:00
Citigroup FX Sales and Trading
How the market moves? BoE rate hike
GBP=, Close(Bid) [Line] 5 Minutes
02Aug06 23:47 - 07Aug06 01:22
Pr
USD
1.91
GBP= , Close(Bid), Line
07Aug 14:05:00 1.9098
1.908
1.906
1.904
1.902
1.9
1.898
1.896
1.894
1.892
1.89
1.888
1.886
1.884
1.882
Bank of England surprise 25b rate
hike
1.88
1.878
1.876
1.874
1.872
GBPUSD moves from 1.87-1.8760
1.87
1.868
03Aug06 02:00 04:00
18
06:00
08:00
10:00
12:00
14:00
16:00
18:00
20:00
22:00
04Aug
02:00
04:00
06:00
08:00
10:00
12:00
14:00
16:00
18:00
20:00
19:00
21:00
23:00
01:00
Citigroup FX Sales and Trading
China- Pegged Currency
CNY =, Close(Bid) [Line] Weekly
26Oct91 - 27Nov 06
Pr
/ USD
CNY = , Close(Bid), Line
13Aug06 7.9680
8.6
8.4
8.2
8
7.8
7.6
In 1994 China devalued its currency and
was pegged to the USD within a band until
last year. Now a ‘crawling peg’. CNY can
only appreciate within a defined band
each day.
7.4
7.2
7
6.8
6.6
6.4
6.2
US calling for quicker appreciation of CNY
6
5.8
5.6
5.4
Jan92
19
Jul
Jan93
Jul
Jan94
Jul
Jan95
Jul
Jan96
Jul
Jan97
Jul
Jan98
Jul
Jan99
Jul
Jan00
Jul
Jan01
Jul
Jan02
Jul
Jan03
Jul
Jan04
Jul
Jan05
Jul
Jan06
Jul
Citigroup FX Sales and Trading
This document does not represent an accounting opinion. The Company should consult with their
auditing firm for further accounting opinion on the proposed transactions.
ADDITIONAL INFORMATION AVAILABLE UPON REQUEST
Citibank, N.A., London Branch and Citigroup Global Markets Inc, including their parent, subsidiaries and/or affiliates (“the Firm”), may
make a market in the securities discussed in this report and may sell to or buy from customers, as principal, securities recommended in
this report. The Firm may have a position in securities or options of any issuer recommended in this report. An employee of the Firm may
be a director of an issuer recommended in this report. The Firm may perform or solicit investment banking or other services from any
issuer recommended in this report.
Although information has been obtained from and is based upon sources the Firm believes to be reliable, we do not guarantee its
accuracy and it may be incomplete or condensed. All opinions and estimates constitute the Firm 's judgement as of the date of the report
and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for
the purchase or sale of a security.
This report is distributed in the United Kingdom by Citibank, N.A., London Branch or Citigroup Global Markets Limited, Citigroup Centre,
Canada Square, Canary Wharf, London E14 5LB, UK. This material is directed exclusively at market professional and institutional investor
customers and is not for distribution to private customers, as defined by the rules of the Financial Services Authority, who should not rely
on this material. Moreover, any investment or service to which the material may relate will not be made available to such private
customers. This material may relate to investments or services of a person outside of the United Kingdom or to other matters which are
not regulated by the Financial Services Authority and further details as to where this may be the case are available upon request in respect
of this material. If this publication is being made available in certain provinces of Canada by Citigroup Global Markets (Canada) Inc.
("CGMI Canada"), CGMI Canada has approved this publication. This report was prepared by CGMI and distributed in Japan by Nikko
Citigroup Limited, it is being so distributed under license. This report is made available in Australia through Citigroup Global Markets
Australia Pty Limited (ABN 64 003 114 832), a Licensed Securities Dealer, and in New Zealand through Citigroup Global Markets New
Zealand Limited , a member firm of the New Zealand Stock Exchange. This report does not take into account the investment objectives,
financial situation or particular needs of any particular person. Investors should obtain advice based on their own individual
circumstances before making an investment decision. Citigroup Global Markets (Pty) Limited is incorporated in the Republic of South
Africa (company registration number 2000/025866/07) and its registered office is at Citibank Plaza, 145 West Street , Sandown, Sandton,
2196, Republic of South Africa. The investments and services contained herein are not available to private customers in South Africa. This
publication is made available in Singapore through Citigroup Global Markets Singapore Holdings Pte Ltd, a licensed Dealer and
Investment Advisor.
Citigroup Global Markets Inc. is a member of the Securities Investor Protection Corporation (SIPC). © Citigroup Global Markets Inc., 2003.
All rights reserved. Smith Barney is a division and service mark of Citigroup Global Markets Inc. and its affiliates and is used and
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used and registered throughout the world. CitiFX  is a service mark of Citicorp, Inc. Nikko is a service mark of Nikko Cordial Corporation.
Any unauthorized use, duplication or disclosure is prohibited by law and may result in prosecution.
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