Currency exchange

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Hedge your currency exchange risk

What are the benefits of hedging currency exchange risk?

Protection against fluctuations

Protect company from currency fluctuations by locking in favourable exchange rates.

Financial planning

Plan, forecast, and allocate resources by knowing exchange rates in advance.

Competitive advantage

Maintain pricing consistency and competitive advantage by reducing risk impact.

Currency Forward

Currency Forward (FX Forward) - a financial contract between two parties to exchange currencies at a fixed rate on a future date. It helps businesses to protect themselves from currency fluctuations by eliminating unexpected losses and possible gains.

Choose currency.
Decide on the amount.
Specify date.
Lock the exchange rate.

To reduce the currency risk that may arise due to adverse fluctuations in exchange rates.
To improve financial planning, budgeting and reduce uncertainty by providing advanced knowledge of exchange rates.
To maintain pricing consistency and reduce the risk of undercutting by competitors with favoorable exchange rates.

Company produces wood and exports it to the UK. The contract is signed to receive 100 000 GBP in 6 months.

Company is concerned that GBP could weaken in the next 6 months, resulting in decreased expected revenues in EUR terms.
To avoid uncertainty, the company enters into an FX Forward contract, thereby fixing the current market selling rate of GBP at 0.8800.
After 6 months - on the day of settlement, the company uses the pre-agreed rate of 0.8800, regardless of what rate is on the market at that time.
By entering into FX Forward contract and fixing the rate company hedged currency exchange risk and avoided potential losses or possible gains from currency exchange fluctuations.

FX Forward agreements are binding, meaning parties can't simply walk away if market conditions change.
If market moves adversely, the contract can turn negative, potentially resulting in a cost.
Closing the contract before maturity could lead to additional costs if the market has moved against the position.

Currency Swap

Currency Swap (FX Swap) - a financial transaction where two parties exchange currencies for a specific time period and then reverse the exchange at a predetermined rate.

Temporarily borrow one currency for another.
Fix rate for future settlement date.
The transaction can be carried out in parts, earlier or later than agreed.

Manage liquidity and exchange rate risk simultaneously.
Obtain short-term funding in a foreign currency.
Provide more flexibility for FX Forward settlement date.

Company receives 100 000 GBP, which it will need to use after 6 months. Until then company would benefit from using EUR instead.

Company decides to lend 100 000 GBP and borrow EUR by concluding FX Swap for 6 months.
FX Swap lets company to fix the rate for future exchange back to GBP.
In FX Swap GBP is exchanged to EUR according to current EUR/GBP rate and simultaneously the exchange rate to convert EUR back to GBP after 6 months is fixed.
FX Swap allowed company to switch from one currency to another for 6 months and then exchange it back at fixed rate by this improving their cashflow.

FX Swap agreements are binding, meaning parties can't simply walk away if market conditions change.
If market moves adversely, the contract can turn negative, potentially resulting in a cost.
Closing the contract before maturity could lead to additional costs if the market has moved against the position.

What you need to get started?

Have a current account at "Citadele" Bank or become a customer.

Familiarize yourself with documents regulating deal conclusion and investor protection and apply for LEI code

Enter into a master agreement for Swap and Forward currency exchange transactions.

To complete the assessment test for the appropriateness of complex financial instruments.

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Instant exchange

Better rates

Risk management

Hedge your currency exchange risk