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Managing
the risk

Helping to manage this risk by putting in place a solution that reduces the risk of an adverse move in an exchange rate for your client, is known as Hedging.

Click on each button to discover how clients may benefit from hedging.

Considerations

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Whether a client decides to hedge or not depends on their circumstances. A client like TR Pty Ltd has a number of considerations when deciding if hedging will meet their needs, for example:

  • What is the company’s desire for import cost or export receipt certainty?
  • What is the company’s acceptable level of risk?
  • What is the company’s ability to absorb a profit or loss from currency rates in their profit margins?
  • What is their view on the direction of the exchange rate?
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Hedging

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Let’s take the high and the low of the annual trading range to quantify the potential foreign exchange risk for TR Pty Ltd.

To buy USD 100,000, at a rate of 0.8300, would cost approximately $120,500. At a rate of 0.6600 it would cost $151,500. That’s a difference of $31,000!

Now imagine the risk TR Pty Ltd would need to manage on every USD payment they make for the purchase of their products from overseas.

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Not hedging

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By not hedging, TR Pty Ltd are fully exposed to the volatility in the AUD/USD exchange rate.

If the exchange rate moves in their favour, that is a great outcome for the business, but if the exchange rate moves against them they are not protected against that move.

Even if a client decides not to hedge, Global Markets can assist with the physical exchange of their currency.

By asking the right questions and engaging your Global Markets Specialists early you can ensure you are meeting more of your clients’ needs and help them achieve their business objectives.

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