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.

Hedging Basics: Currency Swaps

A currency swap locks in a price of a currency pair and is another tool that can be used to manage an organisation’s cash flow. It pays the fixed-price buyer of a currency pair a payout equal to the difference between the current price and the settlement price of the swap.

Hedging Basics: Average Price Currency Options

Movements between currency pairs can be swift and choppy. Using average price currency options can be a significant help in smoothing a corporation’s cash flows.

Hedging Basics: A Currency Pair Risk Reversal

Learn about one of the most interesting strategies used by investors or treasurers to hedge their exposures to the currency markets: risk reversal.

Hedging Basics: FX Hedging Using a Currency Put

Learn about one of the easiest and most effective ways to hedge a currency position, by purchasing a protective currency put.

Where do Swaps Fit into Your Company’s Portfolio?

This is part 10 of a 10 part series on currency swaps and interest rate swaps and their role in the global economy. In part 9, we discussed regulation affecting swaps. In part 10, we’ll review the effectiveness of swaps and whether or not they should be used part of a hedging strategy.

The Future of Interest Rate Swaps: Will Regulation Kill this Investment Vehicle?

This is part 9 of a 10 part series on currency swaps and interest rate swaps and their role in the global economy. In part 8, we discussed the role of interest rate swaps in the demise of Greece. Given the importance of swaps in the U.S. housing crash, new regulation has arisen that could threaten the future of this important financial derivative.

The Euro-zone Crisis: Goldman Sachs, Greece, and Swaps

This is part 8 of a 10 part series on currency swaps and interest rate swaps and their role in the global economy. In parts 1 through 4, we discussed the differences between interest rate swaps and currency swaps, as well as the pricing mechanisms for fixed-for-floating, floating-for-floating, and fixed-for-fixed swaps. In part 8, we’ll discuss the role of swaps in more recent times: the Euro-zone crisis.

Understanding Central Bank Liquidity Swaps

This is part 7 of a 10 part series on currency swaps and interest rate swaps and their role in the global economy. In part 7, we illustrated how companies use swaps in the global market place, but on a company-to-company basis. In part 8, we’ll explain the purpose of swaps on the central bank level and when they’re used.

Real World Example: Swaps Between Companies

This is part 6 of a 10 part series on currency swaps and interest rate swaps and their role in the global economy. In parts 1 through 4, we discussed the differences between interest rate swaps and currency swaps, as well as the pricing mechanisms for fixed-for-floating, floating-for-floating, and fixed-for-fixed swaps. In part 6, we’ll provide a real world example of how swaps are constructed and executed.