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Monitoring an FX hedging programme with dashboards


Once a currency risk hedging programme has been established, a manager’s risk management focus shifts to ensuring that the programme achieves its objectives in both risk reduction and maintenance cost, and that they deliver hedged performance profiles that investors expect. Monitoring the programme is vital and it occurs both ex ante, in a forward-looking sense to quantify the currency exposures and implement the right hedges, and ex post, in looking back at the realized performance and assessing the cost/benefit of the hedging programme. Tools and dashboards that provide managers with accurate and up-to-date information are indispensable to the task.

There are three main components to monitoring the hedging programme:

Amount of currency exposure vs. amount of hedges

  • How are currency exposures identified and quantified?
  • How do the hedge notional compare to the quantified exposures? Are there target hedge ratios?
  • How are the hedge ratios measured and at what frequency?

Monitoring and explaining hedged performance

  • How do we ensure that the current hedges are effective in mitigating currency risks?
  • How has the fund performed (returns, volatility, Sharpe ratio or equivalent) with and without currency hedging?
  • What are the sources of tracking error against the expected return?

Bank relationships and liquidity needs

  • Are bank counterparties receiving “fair” allocations of the hedges?
  • How are the bank counterparties’ credit quality?
  • How much cash might be needed for upcoming hedge settlements or collateral posting?

Different stakeholders, whether internal (e.g., risk committee, investment teams, business development teams, accounting, fund finance, etc.) or external (e.g., current and prospective investors, fund administrator, custodian, etc.), have different reporting needs and require different levels of granularity, as well as potential customization. Many managers have relied on in-house spreadsheet-based dashboards that they have painstakingly developed throughout the years. However, once the hedging programme grows and complexity, or when reporting needs become more demanding, or when key architects of the dashboards leave, managers often find these dashboards cumbersome to maintain.

Chatham has developed various web-based reports giving managers access to all the three components of their currency hedging programme, providing accurate and up-to-date information at their fingertips. This builds trust in their processes and empowers them to achieve their target returns. Screenshots of live (not prototype) dashboards are shown below.

With a long history of technology investments for our clients, and with more than 100 employees dedicated to technology development, Chatham has deployed and continues to build industry-standard features through the ChathamDirect platform. Today, more than 2,000+ clients use ChathamDirect on a regular basis for their risk management needs.

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Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.