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:
By clicking on the pre-delivery and extension button “” 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):
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 (““).
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:
On the extended deal there is a notation to indicate which deal the extension has been transacted from:
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.