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foreign exchange hedge

A foreign currency hedge is the creation of an offsetting position, undertaken with a financial derivative instrument (most of the time, a forward contract), in order to neutralize any gain or loss on the original currency exposure by a corresponding foreign exchange loss or gain on the hedge.

Whether the exchange rate goes up or down, the company is protected because the hedge has locked in a home-currency value for the exposure. A company that undertakes a foreign currency hedge is therefore indifferent to the movement of market prices in currency markets. A foreign currency hedge differs from a speculative position, where a currency position is taken in anticipation of an expected change in currency rates.

Whether business managers desire to protect its budget from FX fluctuations with static, rolling or layered hedging programs, or whether it aims at ‘microheding’ its many foreign currency-denominated transactions, Currency Management Automation solutions allow them to systematically achieve their risk management goals.