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flexible hedging strategy

A flexible hedging strategy or program is the hedging of future FX-denominated cash flows that result from contractually binding transactions, whether or not the corresponding receivables/payables have been created. In a flexible hedging program, forwards are booked against SO/POs (sales orders/purchase orders) and/or AR/AP (accounts receivable/accounts payable).

Flexible hedging strategies or programs call for constant vigilance, as new orders keep on arriving. Their effective implementation is carried out with the help of Currency Management Automation solutions that provide end-to-end automation. On the opposite side of the spectrum, static hedging —where a big hedge is taken at the start of the period and is not reactivated until this period is over— is implemented once.

Flexible hedging strategies or programs are particularly well suited for companies with low forecast accuracy where an FX rate is systematically part of its pricing parameters. Whether their pricing is frequently updated (bed banks in the travel industry) or not (ecommerce companies), these firms are mostly compelled to hedge on a transaction-by-transaction basis.