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What is Hedging
Currency Hedging
Protect your business from currency uncertainty.
Currency movements can change the cost of international purchases, the value of overseas revenues and the profitability of future transactions.
Currency hedging gives businesses a structured way to manage that exposure and create greater certainty around future foreign currency requirements.
The objective of hedging is not to predict where a currency will move. It is to manage the financial impact of movements that could affect your business.
A strategy for managing foreign exchange risk.
Currency hedging is the process of managing the potential financial impact of exchange-rate movements on a business, investment or future transaction.
When a company knows it will need to buy or sell a foreign currency at a future date, the exchange rate available on that future date is unknown. A significant currency move can therefore change the underlying economics of the transaction.
A suitable hedging strategy can help reduce that uncertainty by establishing greater visibility over the future currency requirement.
Currency risk can affect almost every part of an international business.
Businesses do not need to speculate on currencies to have meaningful FX exposure. It can arise naturally from ordinary commercial activity.
Protect Profit Margins
Exchange-rate movements can increase the cost of imported goods, services and raw materials, putting pressure on expected margins.
Improve Budget Certainty
Knowing the potential currency cost of future transactions can make financial forecasting and budgeting more predictable.
Protect Overseas Revenue
International revenues can be worth more or less in the company's reporting currency as exchange rates change.
Manage Supplier Costs
Businesses purchasing from overseas suppliers can face higher domestic-currency costs when exchange rates move adversely.
Reduce Cash-Flow Uncertainty
Managing future currency exposure can provide greater visibility over expected cash requirements.
Support International Growth
Expanding into new markets introduces new currency exposures. Hedging can form part of a wider international growth strategy.
Where does currency risk come from?
Your FX exposure may exist long before you actually exchange the money.
Understanding where those exposures occur is the first step towards developing an effective currency risk-management strategy.
Different exposures require different solutions.
There is no single hedging instrument that is appropriate for every business or transaction. The right approach depends on the exposure, timing, objectives and circumstances involved.
Forward Contracts
A forward contract can allow a business to agree an exchange rate today for a currency transaction at a future date.
EXPLORE FORWARDS →Spot Contracts
Spot FX is designed for businesses with immediate or near-term foreign currency requirements.
EXPLORE SPOT FX →FX Options
Options can provide alternative ways of managing certain currency exposures, subject to suitability and applicable terms.
EXPLORE FX OPTIONS →FX Swaps
FX swaps may be used where businesses need to manage currency funding and timing requirements.
EXPLORE FX SWAPS →Why future currency movements matter.
Consider a business that needs to make a foreign currency payment several months from now.
A business knows it will need to purchase foreign currency.
An adverse currency movement could increase the domestic-currency cost.
An appropriate strategy can provide greater certainty around the future currency requirement.
This is a simplified illustration of the principle of currency hedging and does not represent a guaranteed outcome. Hedging involves risks and costs and should be considered in the context of the specific exposure and circumstances.
From exposure to strategy.
Identify
Determine where your business has foreign currency exposure.
Assess
Consider the value, timing and potential impact of the exposure.
Plan
Establish an appropriate approach to managing the identified risk.
Execute
Use the appropriate FX solution for the requirement.
Monitor
Review exposures as your business and requirements evolve.
Your FX strategy should work around your business.
Currency Hedger combines digital FX access with specialist support to help businesses manage their international currency requirements.
Access a broad range of currency markets and international payment solutions.
Discuss your currency requirements with FX specialists rather than treating every transaction as a simple conversion.
Consider future currency requirements before they become urgent transactions.
Stay connected to your FX requirements throughout the five-day global FX market week.
Put currency transactions into the wider context of your company's financial risk-management strategy.
The objective is not to speculate on currency movements, but to help manage genuine commercial currency exposure.
Don't let currency movements decide your margins.
Talk to Currency Hedger about your international currency exposure and explore an FX strategy built around your business requirements.
TALK TO AN FX SPECIALIST