FX hedging for SME exporters

B2B Pay is not offering FX hedging, and doesn't have immediate plans to FX hedging.

FX Hedging: a useful tool for exporter

The persistence of uncertainty in foreign currency exchange is the force behind exporter interest in Forex (FX) hedging. FX hedging benefits those interested in protecting a portfolio from risks associated with currency, interest rate and commodity or product input. Currency hedging can reduce or virtually eliminate the impact of foreign exchange movements during the term of an investment by way of currency transfer to a paired currency value.

Hedging Risk: Spot Contracts, Foreign Currency Options

Hedging is generally associated with high exposure, which is the high-payoff element of trading. However, FX trading differs in that it offers a risk protection factor within the investment equation during periods of instability in the IPO and derivatives markets. Investing wisely in a long foreign currency pair, in anticipation of currency exchange rate movements, buffers an exporter from downside risk. Short foreign currency pair protects against upside risk.

FX hedging currency trades are diversified by type of contract. On the derivatives market, hedged currency securities are used in the exchange of both short-term spot contracts and longer term foreign currency options contracts. It should be noted that the very limited trading of spot contracts, usually two days, is less effective without hedging. Hedging gives the contract purchaser the right to buy or sell the currency pair at a particular exchange rate in the future. Bear and bull markets are considered in the strategy according to an exporter's tolerance for risk exposure. Risk analysis of the current position will provide indicators if FX hedging is the right strategy for an exporter.

Why FX Hedging is a great Foreign Currency Transfer Strategy for exporters

Hedging also enables a company to offset interests on contracts by locking in an exchange rate on a forward contract at effectively no cost while the difference between the interest rates on the two currencies is favorable. Fair value hedges enable a trader with two interest rate swaps that are outstanding to optimize their contract with a currency transfer. FX contracts designated as a hedge of fair value of another security allow for a company to swap offsets of a change in fair value; or to offset debt swaps without net impact on a company's earnings. Companies can also take advantage of changes in the currency exchange market in response to appreciation or depreciation of a contract with currency transfer, as well as pricing of goods and services in the associated foreign market.

  • Barclays
  • Techstars
  • Nestholma
  • Nordea
  • Tekes
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