Manage your FX rate risks

Foreign exchange rate fluctuations have a direct impact on the profitability of companies that engage on foreign trade.

An FX risk arises if the exchange rate of a future foreign exchange transaction is not known for certain. What makes the situation more difficult is that exchange rates fluctuate strongly and the movements are difficult to forecast. A lot can happen between the time your company concludes an agreement with a foreign partner and the time when the payment is made to your account. However, we offer many hedging products that allow you to mitigate your business’s FX risks.

Risk management should aim to make business more predictable, reducing fluctuations in cash flows and profits. FX risk management helps your company with budgeting and allows it to achieve its estimated margins.

Together we can tailor the most suitable solution for managing your company’s currency flows. You can start your search for the optimal alternative by reading the overview on various FX strategies and their effects.

You should also remember, that having no strategy may also be a conscious decision. But if you decide against hedging your FX risks, you are effectively taking a view on how exchange rates will move in the future. Therefore you are accepting the risk of your company’s result turning negative, possibly overnight.

Of course, exchange rates may also move favourably for your company, but the problem is that their overall direction will become clear once it is too late. We offer various hedging products that give you the best of both worlds. For example, you can use options to hedge against unfavourable exchange rate changes and benefit from favourable ones.

FX trading

Agree on exchanging currencies for a fixed rate. FX trades can be executed at today’s or tomorrow’s rate, or at the spot rate, which is two banking days later. 

FX forward

A binding agreement between a company and Nordea for buying or selling a certain amount of currency on a certain maturity date at an agreed exchange rate.  

This lowers the company’s FX risk and helps in budgeting, managing cash flows and setting prices. The company will know the precise future exchange rate, which means the expenses arising from purchased products (and the income from sold products) are also known in advance.

 

An FX forward can be extended or executed earlier with an FX swap.

Time-option forward

A binding agreement between a company and Nordea for buying or selling a certain amount of currency on a certain maturity date at an agreed exchange rate.

The difference to the ordinary FX forward is that the time-option forward can also be executed in parts and at any time before maturity, but not later than the maturity date.

A time-option forward lowers the company’s FX risk, as the future exchange rate is known. It makes hedging easy because the precise payment schedules do not have to be known in advance. 

Option hedges

An FX option gives the right (without the obligation) to buy or sell foreign currency at a future date at an agreed rate. The customer must pay a premium for an option hedge. 

Hedges can also be executed using zero-cost option strategies, in which case no separate premium needs to be paid.

Option hedges can vary considerably, as they are tailored to our customer’s needs every time. An option strategy can, for example, give you the opportunity to benefit from a positive change in an exchange rate, access to a more favourable exchange rate than the market rate, or simply a limited hedge against FX risks.