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Making the Decision to Hedge

FX Hedging Policy and Strategy

FX hedging is a fundamental element of every treasurer’s role, with the potential for large swings in financial results if hedging is absent or insufficient. Defining the right hedging policy for the business is essential, taking into account stakeholders’ risk management appetite and objectives. Once the overall approach to FX risk has been established, treasurers can then look at the most appropriate way of achieving this, and how to hedge in practice.

Key Points

  • The autor describes FX hedging as 'the fundamental element of every treasurer's role'
  • Three different types of hedging are defined: fair value, cash flow and net investment hedging
  • TNT operates a discresionary hedging policy, with treasury working closely with the business unit from which an exposure is derived
  • A clearly defined hedging policy, simplicity and consistency are the key to success

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Written by:

expert

Renato Pestana

TNT NV

Regional Treasury Manager

This article is available as part of an extensive case studies collection: Risk Management Series

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