Cash Flow Hedge

Many clients create certainty over future profitability by locking in an exchange rate well in advance of a currency requirement actually being needed.

This is generally achieved by a forward contract. A forward contract should only be used where there is some degree of certainty over the future cashflow. More flexible contracts (such as window forwards) should be used where there is no certainty over the timing of future cashflows, but a forward contract should not be entered into, where the customer is not confident that the company has the future currency exposure.

We have put forward contracts in place for a variety of scenarios with our clients. This includes :

  • Locking in rates for conversion of future incoming insurance premiums, when contractual terms are agreed with the insured
  • Buying 7m Euros forward for a year, to cover the expected annual Euro-zone purchases for a well-established manufacturer, so that customer prices can be set
  • A major independent film production company booked forward contracts on approximately $10m of currencies for location shoots. These forward contracts were drawn-down over a period of 6 weeks and helped give the producers certainty on cost levels, minimising the risk of budget over-runs.

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