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When a company uses forward exchange contracts (FECs) to hedge forecasted future foreign currency exposures, often the hedge contract needs to be adjusted to reflect the actual timing of the cashflows as they fall due. For example, an exporter hedging forecast receipts of US$500,000 in six months’ time, may find that the actual amounts are different and may be received sooner or later than forecasted. A common practice is to pre-deliver or extend FECs as the actual timing of the foreign currency payments/receipts become clearer.

In HedgebookPro the functionality to pre-deliver or extend FECs is accessed via the Quick Edit icons that appear when the mouse pointer is hovered over the “View” icon in the Instrument Panel:

PDE image 1

By clicking on the pre-delivery and extension button “PDE image 9” the wizard pops up with the original Amount, Rate and Maturity Date details. Note, the Execution Date defaults to the current date (18 February 2014 in the example below):

PDE image 2Following the entering of the details of the pre-delivery or extension (full or partial) the user clicks “Next>”. Some examples of pre-deliveries and extensions with the pop up box are:

Full pre-delivery:

PDE image 3

Full extension:

PDE image 4Partial pre-delivery:

PDE image 5Partial extension:

PDE image 6Once the details of the pre-delivery or extension are entered, the deal can be saved.

If the deal is a partial pre-delivery or extension then saving creates a second deal in the Hedgebook application i.e. the parent (original deal) plus the child (pre-delivered or extended deal). Note, if the pre-delivery is for a date prior to the Valuation Date set in the app dashboard it will not show under the Current Instruments view, All Instruments must be selected.

Following the completion of the pre-delivery or extension the user is able to see the relationship between deals by using the “View the instrument’s parameters” icon on the Quick Edit icon tray (“PDE image 10“).

Parent

Using the partial extension as an example, you can see that on the “View the instrument’s parameters” of the parent deal that there is a notation to indicate that part of the deal has been extended. The deal number of the extension is a hyperlink for ease of seeing the deal’s details:

PDE image 8

Child

On the extended deal there is a notation to indicate which deal the extension has been transacted from:

PDE image 8Similar notations are included for partial pre-deliveries.

The parent/child deals will appear as appropriate in the FX Matured Deals Report, FX Hedges Held Report, and Transaction Diary Report.

HedgebookPro allows the user to manage pre-deliveries and extensions in a simple and straightforward way so that the true hedge position is always available.