Credit Spread

Quantifying bank counterparty credit spread inputs for CVA

Clients often ask what the appropriate credit spread would be when calculating CVA (Credit Value Adjustment) under the current exposure method – we outline our recommended approach for Australia, NZ and UK based organisations.

FX Options

Hedge accounting FX options: time versus intrinsic value

Learn how FX options lock in the certainty of worst case exchange rate outcomes while allowing participation in favourable rate movements.

Interest Rate Swap

Why use an interest rate swap and how does it work?

A popular blog first released in 2015, largely to help explain what an Interest Rate Swap or IRS is. Funnily enough – the need to know is just as great today, if not greater.

fx forward points

Calculating fx forward points

Since it was first published in 2014 thousands have benefited from this blog’s common-sense approach to a common misunderstanding. It relates to the calculation of foreign exchange (FX) forward points.

FX hedging, not just for the “big boys”

We often encounter a common misconception among SME importers and exporters that the FX hedging market is the domain of the “big boys”. SME importers and exporters often believe that the use of financial instruments…

Six steps to better FX risk management

When it comes to business risks for manufacturers and exporters, time and again fx volatility comes out as the number one concern. FX risk management is seen as a murky world but it doesn’t have…

Hedge accounting has never been easier

It seems like a lifetime ago since hedge accounting was first introduced, nearly ten years ago now. My how auditors loved it. How complicated could they make it? Very, ,was the answer. How about insisting…

Credit spreads back to pre GFC levels

We have discussed CVA at length in our newsletter and blog as it is arguably the most significant change to the accounting standards, from a financial instruments valuation perspective, since hedge accounting was introduced. The…

Lies, damned lies and valuations

With the passing of 30 June we have entered another busy period for year-end valuations. One of the most common questions we are asked at these important balance dates is “why is there a difference…

The Benefits of Hedging, and Managing FX Risk: Part 1

Many small- and medium-sized firms engaging in import and/or export activity tend not to hedge. The reasons not to hedge come in all shapes and sizes: it’s too complex; it’s too costly; there’s a misconception that it is speculation; or even that that firms don’t know about hedging tools and strategies available to them.

Explaining Different Types of Exposure Risk

Importers and exporters alike face foreign exchange risk, or currency risk, when engaging in economic activity outside of their domestic currency. As explained in an earlier blog post, currency risk materializes for exporters when exchange rate volatility results in the company repatriating fewer revenues abroad, when the domestic currency strengthens relative to the foreign currency. For importers, this risk is the exact opposite: currency risk materializes when the domestic currency weakens relative to the foreign currency.

An Introduction to Currency Risk for Importers and Exporters

Import and export companies face the daunting task of dealing with foreign exchange risk that can easily alter revenues from overseas; with smaller cash reserves, exchange rate fluctuations can be the difference between profits and losses.