Many companies use Forward Exchange Contracts (FECs) to hedge forecasted future foreign currency exposures. However, often the hedge contract needs to be adjusted to reflect the actual timing of the cash flows as they fall due. For example, an importer hedging forecast payments of EUR100,000 in six months’ time, may find the actual amounts are different and may need to be paid sooner (or later) than the Maturity Date of the FEC. A common practice is to pre-deliver or extend FECs as the actual timing of the foreign currency payments/receipts become known.
Forward Exchange Contracts in Hedgebook
In Hedgebook the functionality to pre-deliver or extend FECs is accessed via 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 (6 September 2021 in the example below):
Following 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:
2. Full extension
3. Partial pre-delivery
4. Partial extension
Once 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 on the app landing page it will not show under the Current Instruments view, All Instruments must be selected.
FX life cycle report
Following the completion of the pre-delivery or extension the user can see the relationship between deals by using the “FX life cycle report” icon on the Quick Edit icon tray:
The parent/child deals will also appear as appropriate in the FX Matured Deals Report, FX Forwards Held Report, Transaction Diary Report and Exposure Tool.
Hedgebook allows the user to manage pre-deliveries and extensions in a simple and straightforward way so that the true hedge position is always represented. If you would like to know more about Hedgebook and/or how it handles FEC, please don’t hesitate to get in contact.