5 things every leader should know about currency hedging

Lucia Maxim, 11 Feb 2010

Romanian version

Currency hedging is an approach that is intended to protect companies and institutions’ revenues and expenses from the risk incurred by any shifts in the value of currency used in the investment scheme. In order to explain what currency hedging consists in and how it can influence a company’s balance, Wall-Street interviewed specialists in the field and compiled a list of five most important things every leader should know about currency hedging.

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2. How to currency hedge?

In order to avoid unwanted price fluctuations, companies can use one hedging strategy or a hedging vehicle mix.

“All financial institutions have their own resources for currency hedging operations. All the other companies and institutions, in different currency hedging stages should work closely with a financial institution”, said Iulian Lupu.

A leader should develop a close partnership with the Treasury of the bank he is working with, Cosmin Bucur pointed out. A leader should know the name of the vehicle, communicate its objectives to the bank, the cash flow, seasonality, risk management policy, products that can be used in these transactions.

“Together with the bank, a leader will devise strategies, scenarios and simulations that he will use according to market expectations, the flexibility of the strategy, the type of vehicle employed, personal risk appetite of the company’s treasury and his expectations about the performance of the market”, said Cosmin Bucur.

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