The key to successfully hedging currency risks

“Firstly, there needs to be a clear understanding of the risk profile, including the sources, scope and duration of the potential risks,” explains Harald Müller, Head of Group Capital Markets. “This leads to a clearly defined hedging policy and strategy that is in line with the company's objectives, risk appetite and budget. The selected hedging instruments must then match this analysis.“

No success without measurement: regular monitoring and evaluation of the hedging strategy using suitable key figures and clear objectives should also be considered. ‘A reliable partner with experience, local expertise and access to market liquidity is required to implement the hedging strategy,’ recommends the expert.

There are different financial instruments available to hedge currency risks.

• With forward contracts, two parties agree to buy or sell a certain amount of an underlying asset at a predetermined price and date in the future. Forward contracts allow companies to secure a favorable exchange rate and eliminate the uncertainty of future fluctuations. 
• FX swaps allow clients to exchange currencies at a predetermined rate and reverse the transaction at a future date. It allows corporations to manage currency risk and stabilize cash flows by locking in exchange rates for both immediate and future currency needs.
• Option contracts give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price and date. With options, companies can hedge against downside risks while retaining the potential for upside gains. The disadvantage is that they require the payment of a premium in advance and can expire worthless if they are not exercised. 

„We offer companies a broad and innovative portfolio of hedging instruments and services - from traditional forwards, options and swaps to more complex structures such as cross-currency swaps, barrier options and more highly structured products,” summarizes Harald Müller. „We clearly see our strength in the CEE currencies, as we have banks with access to local currency flows in these regions.  With subsidiaries in the CEE countries and access to the necessary hedging instruments, we can offer customized solutions - individually for all customers and adapted to local market conditions, regulations, and practices.“

“We support our clients right from the start. Our dedicated team of capital market experts helps to identify risks and develop the best hedging strategy,“ he emphasizes. We are committed to supporting companies in building up expertise and raising awareness of risk management.