Hedging currency risks

Setting the hedging task

First of all, it is necessary to assess the size, direction and duration of the currency risk, in particular, the timing and volume of receipts and payments in different currencies. If traditional methods of currency risk management are used, their impact on the currency risk profile should be taken into account.

The hedging objective should be stated as clearly as possible and preferably in numerical terms, e.g., an importer may aim to maintain the profitability of the underlying currency in a transaction subject to the cost of hedging within a specified range, and a borrower in a currency may formulate a threshold value for the cost of credit subject to hedging.

When selecting a hedging instrument and strategy, it is important to consider the limitations. For example, if a company enters into a long forward, it needs to be prepared for a large interim revaluation during the term of the forward and therefore the need to fulfill margin requirements. If the company may not be able to raise funds promptly to meet interim margin requirements, then perhaps buying options may be a better option.

AME Capitals experts will advise on the choice of instrument according to the company's business profile, hedging objective and existing limitations. Indicative assessment of the cost of hedging and analyzing the result in different scenarios can be done multiple times as requested by the client.

Conclusion of hedging transactions

After determining the hedging approach, selecting suitable instruments and signing a master agreement for derivative transactions on financial markets, the company may enter into derivative transactions./p>

Transactions are made by speaking directly to an AME Capitals derivative desk employee. Once the terms of the transaction have been agreed upon, the process of documenting within the framework of the signed master agreement begins. Before entering into a transaction, the client may repeatedly request indicative quotes to assess the cost of hedging and to select an instrument.

If there are concluded transactions, the Client receives from AME Capitals on a daily basis a report with an estimate of the cost and interim financial result of the open position, the balance of the collateral and the calculation of claims and obligations for the payment or return of the collateral.