Forex hedging options - How to Hedge Exposure to the South African Rand
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Can the company live with the decision? Management must satisfy itself that whatever forex hedging options outcome of the hedging decision, it can live with it.
Often decisions will not be taken for fear of how shareholders or investors may react if it does not turn out to be good. The cost of hedging Forex hedging options interest rate differentials between the U.
This benefits the buyer of ZAR e.
SA exporter that receives U. This inevitably leads to forex auto millions review question on market timing—normally, treasury should not try to hedging options forex the market, as the reason for hedging is not speculation, although it is natural to try and pick the best rate possible.
With a volatile currency like the ZAR, waiting can prove either to be a very good or a very costly decision. forex hedging options
How to hedge This involves the following:. With whom to hedge This involves the decision on which bank will be the counterparty.
In essence, hedging ZAR forex hedging options is not much different from hedging any other liquid currency. There are some unique exchange controls to adhere to, but these are manageable with proper preparation and with the assistance of optiosn local banks.
A longer version of this article will appear in an upcoming edition of AFP Exchange. You may also be interested in:.
DOWNLOAD South Africa, with a population exceeding 50 million, has a growing consumer base and middle class, making it an attractive market for local and overseas companies. South Africa, with a population forex hedging options 50 million, has a growing hedging options forex base and middle class, making it an attractive market for local and overseas companies.
In deciding on an appropriate hedging strategy, your treasury department will need to consider at least the following:. Firstly, it must be determined how forex hedging options can opfions get if the ZAR moves against the underlying position and no action is hedging options forex. The impact of natural hedges and correlations in the portfolio must be taken into account, but keep in mind that correlations do not always hold.
Secondly, once the numbers have been run, the different forex hedging options with regard to the hedging decision must be considered, for example:. The above will then lead into a more specific decision on how much and how hedting forward to hedge. The certainty of exposure is also important, i.
Typically the exposure will be less certain as forex hedging options increases. If a defensive hedge is done e. The company will in essence have to take into account how much risk it is can take risk tolerance versus how much risk it wants to take risk appetite.
Management must satisfy itself that whatever the outcome forex hedging options the hedging decision, it can live with it. Often decisions will not be taken for fear of how shareholders or investors may react if it does not turn out to be good. The interest rate differentials between the U.
Description:May 20, - The devaluing of the Rand means that South African investors are now have caused the local currency to devalue at an accelerated magasinndeabercromfitch.infog: options | Must include: options.