Foreign Currency Risk Management

An FX forward curve is a curve that shows FX forward pricing for all the different dates in the future. FX forward pricing is determined by the current exchange rate, the interest rate differentials between the two currencies, and the length of the FX forward.

An FX option is a contract that confers on the holder the right but not the obligation to exchange an amount of one currency for another at a pre-agreed rate (strike rate) on or before a pre-agreed date.

An FX forward is a contractual agreement between the client and the bank, or a non-bank provider, to exchange a pair of currencies at a set rate on a future date.

An FX collar involves buying a cap and selling a floor on the same currencies with the same expiration date. The two options set the upper and lower strike prices.

An FX Swap/Rollover is a strategy that allows the client to roll forward the exchange of currencies at the maturity (settlement) of a Forward contract.

“Stranded” or “shadow” balances have become a common problem for corporates looking to minimize FX gain/loss noise due to remeasuring balances. In this article, we’ll give some background on what these balances are, how to manage existing ones, and how to prevent new ones from forming.

Considering the ongoing hawkish rhetoric from the Federal Reserve, the U.S. dollar continues to show meaningful strength since reaching a 12-month low earlier this summer. As the Fed attempts to stick a successful soft landing, multinational companies (especially those with foreign-denominated revenues) are once again facing negative FX impacts.

Severn Trent's successful £350M bond issuance, the current dynamics of the sterling rates market, the implications of recent economic indicators on inflation and interest rate hedging strategies, and more in today's fortnightly.