FX & Currency Hedging Policy Review

Commentary

FX and currency hedging are complex topics, which generate a lot of discussion in most companies. We held this session to see whether members are changing their hedging strategies in response to the recent increase in currency volatility, coming after a period of (relative) stability.

The quick answer was that few, if any, participants are reviewing their policies for this reason. Several are indeed reviewing their policies, but this is part of an ongoing cycle, under which most people revisit their policies regularly, to make sure they are still appropriate. There is consensus that a hedging policy, once decided, should be consistently followed – though many of the policies described allow for some degree of judgment around a central approach.

For the rest, the discussion below is one of our more difficult reads, but maybe more worthwhile for that. It is long and complex: I will not try to cover all the points. The policies implemented show a lot of variety:

• Some hedge future cash flows, while some hedge balance sheet, and some hedge both.
• It is important to be clear about the objectives of hedging. These varied amongst participants. There is a complex relationship between budgets and hedging.
• Most participants are looking at options, though not many are using them, mostly due to cost.
• Especially for balance sheet hedges, most participants (but not all!) hedged irrespective of cost – though there are always exceptions, especially for