gt news | OCTober 2011 | By UDI SELA, VICE PRESIDENT-Client Solutions, Numerix
Hedging FX Exposures: Which Strategy is Right for Your Business?
This article addresses foreign exchange (FX) risk, examines a large Swiss multinational company and the impact on its financial statements (second half of 2011), and suggests various hedging strategies using FX options.
Since the sub-prime crisis, the markets have witnessed unprecedented levels of volatility across all asset classes. The impact of unpredicted volatility could be significant for the core businesses of corporations across the globe. In response, various hedging strategies were prepared towards the end of August 2011, and subsequently measured the performance of all strategies six weeks later (the beginning of October 2011).
The FX Market: Facts and Figures
The foreign exchange (FX) market is the most liquid market today, serving a crucial role in facilitating international trade. According to the latest Bank of International Settlements (BIS) survey, published in April 2010, the market’s daily volume is US$4 trillion. This represents a 20% growth rate, as compared to April 2007 when the previous survey was carried out. Over the same period, FX derivatives volume has increased by 9%. Interestingly, the market has become more global as the cross-border trading represents now 65% of all FX trading.
Author: Udi Sela
