Hedging strategies for currency risk management

Can you tell us why you want to hedge your currency risk?

Guaranteed protection rate's strategies ensure that, whatever the evolution of rates and whatever the scenario at expiry, you can buy your currencies at a guaranteed protection rate, known when the contract is set up.

By answering "yes" to the following question, you therefore make sure that you are protected in all cases.
On the other hand, you deprive yourself of strategies that allow you to seek the more performance. These can sometimes be useful to catch up on the budget rate that you have defined.

Guaranteed protection rate's strategies ensure that, whatever the evolution of rates and whatever the scenario at expiry, you can sell your currencies at a guaranteed protection rate, known when the contract is set up.

By answering "yes" to the following question, you therefore make sure that you are protected in all cases.
On the other hand, you deprive yourself of strategies that allow you to seek the more performance. These can sometimes be useful to catch up on the budget rate that you have defined.

Would you like to have a guaranteed protection rate no matter what?

The level of the guaranteed protection rate always compares to the benchmark forward rate.
The benchmark forward rate is the price at which you could buy your currency through a standard forward contract.

There is few strategies that offer a better protection rate than the benchmark forward rate because the general principle of options is to agree to downgrade the guaranteed protection rate in order to ultimately benefit from a better rate than the protection rate under certain conditions. The further the guaranteed protection rate is from the benchmark forward rate, the greater the potential for gain.

The level of the guaranteed protection rate always compares to the benchmark forward rate.
The benchmark forward rate is the price at which you could sell your currency through a standard forward contract.

There is few strategies that offer a better protection rate than the benchmark forward rate because the general principle of options is to agree to downgrade the guaranteed protection rate in order to ultimately benefit from a better rate than the protection rate under certain conditions. The further the guaranteed protection rate is from the benchmark forward rate, the greater the potential for gain.

Would you like the level of your guaranteed protection rate to be better or less favorable than the benchmark forward rate?

The leverage or "ratio" is a variant which can be applied to any type of strategy and which generally makes it possible to improve the levels of the protection rate and / or the barriers. The counterpart is that you expose yourself to the risk of having to buy an amount greater than the notional amount.

A multiplier coefficient (generally equal to 1.5 or 2) is defined during the implementation of the strategy. The risk is therefore, according to the scenarios at expiry of the contract, of having to sell a maximum amount equal to "notional amount " * " coefficient."

The leverage or "ratio" is a variant which can be applied to any type of strategy and which generally makes it possible to improve the levels of the protection rate and / or the barriers. The counterpart is that you expose yourself to the risk of having to sell an amount greater than the notional amount.

A multiplier coefficient (generally equal to 1.5 or 2) is defined during the implementation of the strategy. The risk is therefore, according to the scenarios at expiry of the contract, of having to sell a maximum amount equal to "notional amount " * " coefficient."

Would you accept that you could be required to deal an amount greater than the amount
initially planned?

A strategy will be more relevant compared to another depending on your feeling on the evolution of currency rates. Some strategies are indeed more appropriate in a bull market and others in a bear market. It is therefore important to have an opinion on what direction the market will take during the period of the contract (period between the booking date and the expiry date of the contract).

How do you feel about the direction of the currency pair you want to hedge?