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Hedging against changes in currency price

Almost every corporation having business relationships abroad is open to currency risk. Fluctuations in currency rates has significant impact on financial results. It is much more beneficial to hedge against unfavorbale movements in currency rates, than to expect, that rates change will be in favor of corportations interests. Therefore, income will be forecasted more accurately and business will be more successful, when:

  • exporting goods and services, when buyers pay with currency different than euro
  • Importing goods and services, when corporation has to pay in currency different than euro
  • in all other cases, when income and expenses come in differenet currencies

Typical financial instruments for hedging against changes in currency price:

  • forwards, where currency rate is set now, and settled in the future
  • options, which give right, not obligation, to buy or sell currency in the future on predifined rate

Both instruments are found on DNB Trade platform which will give you additional flexibility managing currency risk.

Forwards vs. Options

Instrument Forward Option
Currency pairs 130 currency pairs 40+ currency pairs
Minimal trade value 5000 currency units 10 000 currency units
Expiration From 3 days to 12 monhts From 3 days to 12 months
Closing positions Can be closed before expiration Can be closed before expiration
Forward rollover Automatic (details below the table) -
Excersising options - Cash or spot
Settlement Closed positions are cash settled Closed positions are cash settled
Simple documentation After each trade, printable confirmation is provided After each trade, printable confirmation is provided

Forward rollover - It is not unusual that expiration dates have to be changed. In this case, forward rollover is needed in order to stay hedged against currency risk. DNB Trade automatically rolls over position to next day, until you close the position.

Important Note! Only difference in price is settled in cash. If physcial currency conversion is required, you must call DNB Trade by tel: 852393631 or contact by chat from DNB Trade platform.

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