Glosario

Natural currency hedging refers to a hedging technique that does not require the use of financial derivatives. For example, a holding company with subsidiaries can seek to maintain equal amounts of receivables and payables denominated in a foreign currency. To undertake natural currency hedging, a firm with FX-denominated receivables could borrow short-term in that currency. When translated into the firm’s functional currency, the depreciation (appreciation) of the foreign currency would result in a loss (gain) in the value of the receivables, but in a lower (higher) value of the liabilities as well. While theoretically attractive —because of the implied lower transaction costs that it entails—, natural hedging is much less precise than hedging with forward contracts. Besides, such a technique may not be always fully ‘natural’ but forced, i.e. the company would end up subordinating business decisions to risk management decisions.

In Hedge Accounting, net investment hedging refers to the practice of offsetting FX-related changes in the value of net assets of a subsidiary by using a derivatives instrument. For example, a company with EUR as its functional currency has a wholly owned US subsidiary whose functional currency is USD. At the date of hedge designation, the company can include the carrying value of the subsidiary’s net assets as a hedge item. The other two types of hedges authorised under hedge accounting are fair value hedges and cash flow hedges.

In general terms, netting refers to the practice of consolidating two different settlements in order to create a single value.

How does netting work?

For instance, if Company A owes $50,000 to Company B and Company B owes $40,000 to Company A, they can set a netting value of $10,000 (that Company A owes to Company B).

Foreign currency netting, also known as cash pooling is a common form of netting. Multinationals with subsidiaries in other countries might need to conduct frequent foreign exchange transactions between subsidiaries and the parent company.

In some cases, these companies can use a netting centre, which holds accounts in a reserve currency, while the subsidiaries hold accounts in their local currencies.To put it simply, this structure allows the firm to reduce payments from and between subsidiaries, as each subsidiary will receive payments from the netting centre, and make single payments back to the netting centre.

There are three advantages to reducing the volume of foreign payments:

1. Less money in transit means more money available for investment.
2. Fewer foreign currency payments mean reduced transaction risk.
3. A reduction in the commission paid on foreign exchange transactions.

A non-convertible currency is the monetary unit of a country where holders of the currency do not have the right to convert it freely at the going exchange rate into any other currency. A currency is considered as non-convertible if it fulfills one or more of the following three criteria about usability, exchangeability and market value: it cannot be used for all purposes without restrictions; it cannot be exchanged for another currency without limitations; It cannot be exchanged at a given exchange rate.

In the process of translating foreign-currenecy denominated assets and liabilities into a firm’s functional currency, non monetary items are foreign-exchange denominated physical assets such as inventory and fixed assets that cannot be easily converted into cash or cash equivalents. By contrast, monetary assets and liabilities are items that represent a claim to receive, or an obligation to pay, a fixed amount of foreign currency units. In the monetary/non monetary method of translation for the balance sheet, monetary items are translated at the current rate, while non monetary items are translated at historical rates.

In FX futures markets, the notional amount or notional value of a contract represents the value of the futures position at any point in time. If contract size for the EUR contract is EUR 125,000 and the exchange rate for September delivery is EUR-USD 1.18705, the September contract has a notional value of $ 148,381.25 = 125,000 x 1.18705. The value is said to be ‘notional’ because delivery actually almost never takes place in currency futures. However, it is needed to calculate the P/L of the position. In interest rate swaps, the principal amount is used to calculate the cash flows of the swap, but because it is not actually exchanged, it is called ‘notional’.

In FX hedging with futures contracts, the optimal hedge ratio is the number of futures contracts required to hedge a given exposure. As an example, a Candadian farmer has signed a contract to sell 800,000 pounds of live cattle to a U.S. supermarket in three months’ time, at USD 1.65/pound. The spot USD-CAD rate is 1.1111. What number of contracts should be used to hedge the resulting CAD 1,466,652 exposure? If contract size is CAD 100,000, then the farmer should buy 14.7 contracts, which is then rounded to 15.

En el mercado de divisas, una orden de mercado es la instrucción de un inversor de vender o comprar una divisa de forma inmediata.

Debido a la volatilidad del mercado de divisas, las órdenes de mercado se ejecutan en el precio disponible en el momento en que se ejecuta la operación. Las órdenes de mercado pueden fijarse al tipo de cambio seleccionado por el comprador para garantizar que la compra o la venta se realiza en el momento más oportuno, minimizando los efectos adversos de la volatilidad.

Cuando un cliente solicita una orden de mercado, el proveedor de divisas supervisa los movimientos en los tipos de cambio y ejecuta la operación cuando el tipo seleccionado por el cliente es alcanzado. Esto es posible en gran medida gracias a la automatización a través de plataformas en línea a través de las cuales se pueden comprar y vender de forma inmediata.

Las órdenes de stop loss son órdenes de mercado automáticas que se ejecutan para cerrar una posición abierta con el objetivo de evitar que su valor se siga depreciando. Estas órdenes tienen la función de asegurar un valor mínimo de los activos, en el caso de movimientos de mercado adversos.

Cómo se usan las órdenes de stop loss

Los inversores o las empresas con activos y pasivos monetarios en divisas distintas a su moneda funcional tienen en las órdenes stop loss una herramienta para proteger sus márgenes del riesgo de tipo de cambio. En este caso, la orden de stop loss se utilizará para asegurar que la operación se ejecuta antes de que el tipo de cambio supere un nivel predeterminado. Así pues, se trata de un método para limitar el riesgo de divisa.

Estas órdenes automáticas son un recurso muy útil para las empresas que no tienen el tiempo ni los recursos para monitorizar las evoluciones del mercado. Sin embargo, tienen un inconveniente, que un movimiento repentino del tipo de cambio puede activarlas y ejecutar una operación.

Por esta razón, es importante emplazar el stop loss en un nivel que permita las fluctuaciones de las divisas, pero que a la vez proteja a la empresa o al inversor si el tipo de cambio excede un determinado nivel.

Ejemplo de una orden stop loss de tipo de cambio

Una empresa europea necesita 1 millón de dólares para pagar a un proveedor de EE.UU. Si el cambio actual del USD/EUR es 0.80, la empresa necesitará 800.000 euros para efectuar el pago que está programado para una fecha futura.

Para evitar que el coste de la operación se encarezca si el euro se deprecia contra el dólar, la compañía coloca una orden de stop loss para comprar dólares al tipo de cambio USD/EUR 0,88, una diferencia del 10% respecto al cambio actual.

De esta forma, si el mercado de divisas evoluciona en una dirección desfavorable para la empresa y el tipo de cambio del dólar supera el nivel de 0,88, la orden stop loss ejecutará automáticamente la operación. Esto garantiza a la empresa que, en ningún caso, el coste de su operación aumentará por encima del 10%.

Other comprehensive income is part of the ‘Statement of comprehensive income as defined in the rules set by the International Accounting Standards Board (IASB). The statement of comprehensive income extends the conventional income statement to include certain other gains and losses that affect shareholders equity. Among the gains and losses recorded in ‘Other comprehensive income’ are unrealised FX gains and losses.