used to hedge exposures to exchange rate fluctuations by locking in future foreign exchange rates. We will work with you to develop an appropriate foreign exchange risk management strategy that effectively meets the requirements of your business, using instruments such as spot cover, forward exchange contracts (FECs) and derivative instruments. Nedbank has a team of foreign exchange specialists to provide all the practical support and advice to make managing currency risk simple and cost-effective. Long-dated forwards These are FECs with a maturity date longer than 12 months forward. One party to the agreement agrees to buy the CF contract at a specified exchange rate and the other agrees to sell it at the expiry date. With a call option the buyer has the right, but not the obligation, to buy the underlying currency at a fixed exchange rate on a predetermined future date. There are two main types of option contracts, namely call options and put options, and these can be used in various combinations to provide structured solutions to meet a clients hedging requirements. Same-day and next-day value deals Where urgent currency payments or receipts need to be processed, one-day value or even same-day value exchange rates may be provided, depending on the currency cutoff times. A fully optional FEC can be used at any time between the date of establishing the FEC and the specified maturity date.
Financial markets information and advice Pertinent data and astute perspectives on the foreign exchange markets are also provided to our clients. Call me back, overview, businesses that trade internationally are likely to be exposed to foreign exchange risk arising from volatility in the currency markets. Early delivery (or pre-takeup) swaps are used to bring forward the maturity date of an existing FEC.
If not managed effectively, the impact that exchange rate fluctuations can have on a businesss profitability can be significant. Currency futures A currency futures (CFs) contract is an agreement that gives the buyer the right to buy or sell an underlying currency at a fixed exchange rate at a specified date in the future. The two-day settlement process, commonly referred to as spot, is international practice and is due to differences in time zones and the time required by banks to ensure that settlement occurs correctly. Contracts are cash-settled in rand and no physical delivery of the foreign currency takes place. Extension (or rollover) swaps are used to extend the maturity date of an existing FEC to a later date. Nedbank has a team of foreign exchange specialists who can provide all the practical support and discerning advice to make managing currency risk simple and cost-effective. Download PDF, additional Information.
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