Hedging techniques

Understanding The Hedging

A hedging is actions taken to protect a company from exposure against the exchange rate. Exposure against fluctuations in the value of is the extent. To which a company can be affect by exchange rate fluctuations.

Particular hedging currency exposure means an offsetting establishing. Such whatever is lost or gain on the original currency exposure is exactly offset by the corresponding foreign exchange gain on the loss on the currency hedge.

Hedging in the above definition is a part of currency exposure. Which means determining a replacement for exchange rate losses. Such as loss or gain on the value of the origin of the currency exposure can actually be likened to gains or losses on currency exchange rates currency hedge.

Tangible

The hedge is the purchase of the contract (including forward foreign exchange) or tangible good. That will rise in value and offsets a drop in value of another contract or tangible good. Hedgers are undertaken to reduce risk by protecting an owner from loss.

Hedge is the purchase of a contract (including forward exchange) or really goods whose value will increase and losses from the collapse of the value of the contract or the goods manifest. The perpetrator try to protect owners from Hedging losses.

Techniques for short-term Hedging

Techniques that can usually be use in part or all of men hedge transactions in the short term, describe by include:

1. Hedging future contract wear: Futures contract is a contract which sets an exchange currency in specific volume at a specific settlement date.


2. Hedging contract wear forward: A contract between the customer and the bank to do a certain amount of sales or purchases of currency against the other currency in the future with the rate that has been determined at the time the contract is made.

The advantages include:

• Avoid and minimize the risk of exchange rate may be made in accordance with the customer needs a goal.


• Forward contract use for mangrove the risk of exchange rate for currency purchase/sale in the future.


• If there is a business transaction, forward contract can eliminate currency exposure because the exchange rate currency for the foreseeable future.


• Calculations are definitely cost for the purpose of speculation.

3. Money market instruments wear hedging.
   Hedging involves money market instruments array in the taking of a position in the money market to protect the position of debt or receivable in the future.


4. Hedging wear options (option) currency

Option provides the right to buy or sell a certain currency with a certain price during a certain time period. The purpose of this option is for hedging.

Hedging techniques long term

There are 3 techniques are often use to hedge exposure to the long term are:

Long-term Contracts forward (Long forward)

Long Forward is a long term contract forward. Just as the contracts are short term, can forward is design to accommodate the specific needs of the company. Long forward very interesting for companies that have sign contracts value. At export or import fix long term and protect their long term cash flows.

Currency Swaps

Currency swaps are an opportunity to exchange one currency with another currency at the exchange rate and a specific date by using banks as intermediaries between two parties who want to do currency Swaps. The purpose of the swap includes:

1. Mangrove the risk of exchange rate for the purchase/sale of currency.


2. Swap transactions will eliminate currency exposure because the exchange rate on a future date has been set.


3. Some definite cost calculations.


4. For the purpose of speculation.


5. Gapping

Strategy swap Benefits:

1. Avoid the risk of exchange of money.


2. Not interfere with outposts in balance sheet.

Parallel Loan

The parallel Loan is credit involving the exchange of currency between two parties. With an agreement to exchange the currency-currency returns on the exchange rate and date particular in the future. A parallel Loan can swap with two identify that are combine into one. One swap occurs at the beginning of the contract parallel loan and the other on a certain date in the future.



The particular hedging currency exposure means an offsetting. Such establishing whatever is loss or gain on the original currency exposure. It is exactly offset by corresponding gains on foreign exchange loss on the currency hedge. Hedge is the purchase of contracts (including foreign exchange forwards) or tangible good. That will rise in value and offset a drop in value of another contract or tangible good. Hedgers are undertakes to reduce risk by protecting an owner from loss.