Example of how hedging helps a car importer
In Feb 2018 you have agreed a deal to import cars from Japan worth ¥250m, which you have to pay in June. Here’s how you can protect your margins via hedging:
Spot Fx
Importing cars worth: ¥ 250,000,000
In Feb 2018 the EUR/JPY exchange rate is 135.45. The cost in EUR is €1,822,157
By mid June the EUR has weakened to 127.35. The cost has now spiked to €1,963,094
Your loss is €140,936