Question

There are at least two Chinese renminbi ETF's. CYB and CNY. How would, say, Apple, use these? Start by describing a SPECIFIC Apple yuan exposure (how it arises), and then speak to CYB or CNY, choose and justify long or short position.

Answer 1

For Apple China is a significant market for I phone sales. Apples strategy is to sell I Phones for Yuan, but pay the suppliers of parts in dollars. Hence, Apple has a long Yuan exposure. That means depreciation of Yuan relative to the $ will hurt Apple bringing the sales revenue (Converted from Yuan to $) down. However, cost remains the same because remember payments to suppliers are being made in $ which in turn will bring down the company’s profit (lower revenue but same cost).

Hence, to offset this currency risk a short position in CYB or CNY Etf to the amount of sales needs to be taken.