(6 August 2024 – Global) After an extended period of generationally low interest rates, CFOs and treasurers are turning their attention to profiting materially from growing rate differentials between key currency pairs.
Paul Golden reports for Euromoney that CFOs respond too sluggishly to recalibrating their currency risk management strategy actively to take advantage of underlying FX market ructions.
To reduce the cost of hedging stemming from unfavourable forward points (the difference between the spot and forward rate for a currency pair), treasurers can define their degree of risk tolerance and use conditional stop-loss orders to delay hedging execution.
“We suggest clients enter into a layered hedging policy where there is a positive interest rate differential on their respective currency pair exposure to maximize the price benefit attached to the forward curve” commented Ebury Head of Dealing UK, George Roberts.
“Treasurers can implement dynamic hedging strategies. With accurate exposure data, treasurers can use efficient frontier optimization to balance risk reduction and hedging costs. Investing in tools to compute the efficient frontier typically costs a fraction of the potential savings in hedge costs” stated Zanders Treasury Director, Sander de Vries.