Definition: FX (foreign exchange) hedging helps protect current or future positions against the risks of currency exchange rate fluctuations. Popular approaches include spot contracts, foreign currency options, and currency futures.
Example: If a German company expects to sell equipment in U.S. dollars, it could protect a portion of the transaction with a currency option that will deliver profit if the Euro increases in value against the dollar. If the dollar strengthens against the Euro, the company only loses the cost of the option. If the dollar weakens, the profit from the currency option can offset some of the losses when repatriating funds from the sale.
Explore IVP Middle Office Services:
IVP’s Middle Office Services offer a fully scalable and customizable service that allows all kinds of asset managers to significantly improve operational efficiency and transparency. By outsourcing critical middle office processes, firms can support FX hedging more effectively. Our comprehensive suite of middle office services encompasses everything from trade lifecycle management and corporate actions processing to asset lifecycle management.
