The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Treasury

Shifting currency exposures create treasury dilemma

Hedging may look expensive for businesses that have seen their revenues cut heavily by Covid-19 prevention measures, but removing hedges for currencies to which they have limited exposure may prove even more so.

shopping-clothes-fashion-hangers-780.jpg

There have been a number of unwinds by European fashion retailers, according to Deutsche Bank



Many treasurers have found themselves with higher than expected hedge ratios as a consequence of reduced revenues caused by coronavirus restrictions.

Where corporate treasuries run anticipated cash-flow hedging programmes based on sales/costs forecasts, under normal circumstances they tend to be under-hedged to allow for forecast errors on these programmes. But given the unprecedented impact of coronavirus on the global economy, there will be cases of corporates that are over-hedged for their revised forecasts.

As with so many other aspects of the pandemic, the effects on treasury have been unevenly distributed.

Many businesses exporting from Europe were running small hedge ratios anyway due to low volatility and fairly high hedging costs.

Those forced to temporarily suspend production tend to see their cost base as stable from a long-term perspective and therefore treat any potential over-hedge more like a timing mismatch than an actual open position.

Misalignment

There have also been cases where there is an expectation of a ramp-up effect towards the end of the year, says Ole Matthiessen, head of cash management corporate banking at Deutsche Bank.




You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree