chapter  3
10 Pages

Transaction-based Structural Hedging

Example 1 A German company will receive $150,000 in late March, and payout $80,000 at the same time. Exposure to the currency risk can be reduced to $70,000 by matching the payment against the income, and using some of the dollar income to make the dollar payment. If another dollar payment of $30,000 is due in early April, this too could be offset against the income, leaving a net exposure of $40,000 that it could hedge in another way. (The company could hold its dollars in an interest-earning dollar bank account until the payment is made.)

Offset hedging: Foreign Currency Income

Cash income expected in a foreign currency

Are cash payments due in the same currency at the same time?