Frequently asked questions
Foreign exchange (FX) risk is a risk that exists when transactions take place in varying currencies outside of a company’s functional currency. This risk occurs when a company’s exposure to the currencies it does business in is not properly managed. Currencies are volatile and affected by various macro - economic factors. So if companies leave fx exposure open and not hedge such type of risks with special tools, they are like speculators. Properly managed businesss need to avoid speculations and focus on their core business.
Hedging in the forex market is the process of protecting a position in a currency pair from the risk of losses.
An internal company regulations for managing fx risks.
A foreign currency hedging strategy or program is a set of procedures that allows a company to achieve its goals in terms of managing currency risk. It is based on the business specifics of the company, including its pricing parameters, the location of its competitors and the weight of foreign exchange in the business.
The most widely used foreign currency hedging strategies or programs include: static budget hedging, rolling hedging, layered hedging, hedging based on business orders, and combinations of programs.
The rate company is planning in their budgets, profit margins/costs. Hedging can help to keep budget rate secure and during the cash flows time frame increase that rate into better.
Value at risk (VaR) is a statistic that quantifies the extent of possible financial losses within a firm, portfolio, or position over a specific time frame. FX hedgers with Corphedge can see how much risks can be if not hedge currencies exposure.
This is like to understand the size of elephant in the room.
What is an FX forward?
An FX forward is a contractual agreement between the client and the bank, or a non-bank provider, to exchange a pair of currencies at a set rate on a future date. The pricing of the contract is determined by the exchange spot price, interest rate differentials between the two currencies and the length of the contract, which the buyer and the seller decide.
Objective
The purpose of an FX forward is to lock in an exchange rate between two currencies at a future date to minimise currency risk. This might be done, for instance, if a company is contractually obliged to pay a set amount for the future delivery of goods in a foreign currency and wishes to lock in the rate.
Yes, you can import/export your cash flows, trades book, analysis data.