Glossary

Rolling hedging is part of a ‘family’ of hedging programs in which the foreign-currency exposure for the current budget —divided into months or quarters— is forecasted and hedged partly (or entirely) during the previous budget period. The process is continuously updated, as the following year’s exposure is planned and hedged during the current year. The hedge rate for a given period is the average of all the forward rates used to hedge the exposure of that particular period. While keeping the exposure under management constant, rolling hedging programs require continuous forecasts, as no budget is hedged in isolation—rather, each budget is hedged in connection to the previous one. While rolling hedging programs are relatively straightforward to implement and manage, Currency Management Automation solutions allow firms to run them in a fully automated manner, minimising operational risk and freeing up time for treasury teams to concentrate on more value-adding tasks. Also, Currency Management Automation makes it possible to combine rolling hedging programs with more dynamic programs based on hedging firm commitments instead of forecasts.

Rolling positions forward refers to the extension of an FX forward contract. It is achieved by closing out a soon-to-expire contract and opening another one at the current market price for the same currency pair with a longer-dated maturity. The resulting gains or losses on the expiring forward are charged or refunded by the liquidity provider to the company. For example, a company holds an EUR-USD forward contract covering a USD 1 million payment to a supplier. The contract expires in a few weeks, but the supplier delays delivery for three months, so the company wants to roll the contract over to cover these additional three months. Suppose the initial forward rate was 1.10 and the new forward rate is 1.12. The contract issuer will close the initial contract under which the company needs EUR 909,000 to buy USD 1 million. With the new forward rate of 1.12, the company will have to pay EUR 892,000 on the new maturity date. By rolling over the forward, the liquidity provider should refund the hedger with EUR 17,000.