Udi Sela Senior Product Specialist, SuperDerivatives
Udi Sela Senior Product Specialist, SuperDerivatives

Using options for more effective hedging of corporate currency exposure

First Published: e-Forex Magazine 24 / The e-Forex Surgery / July 2006

In what ways would the use of options provide a more effective way for us to hedge our currency exposure?The use of options provides the most efficient way for corporations to protect themselves from potential negative affects of foreign exchange (FX) movements. Options are not necessarily expensive and because they can be customized to suit specific exposure scenarios often they are actually the cheapest and most effective way to hedge currency exposure. Buying (or selling) futures or forwards do no more than lock a company into a rate and so they are highly inflexible in what is a dynamic and ever-changing market environment. The beauty of options is their flexibility — they can be specifically tailored to provide payoffs that match end users’ exposures more closely, and also suit their tolerance to risk, corporate policy and satisfy their accounting and compliance requirements. Additionally, they can reflect users’ general outlook on the market. All of...continued

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