Manage your international exposure

Fluctuations in the currency market may have an adverse effect on your import payments and export receipts. You may be exposed due to currency volatility and by using foreign exchange risk management products, you can help minimise your risk.

 

Spot foreign exchange

The most popular foreign exchange product is simply an agreement to buy or sell one currency in exchange for another. You settle the contract immediately, at a price based on the prevailing 'spot exchange rate' or the current value of one currency compared to another. 


Forward Foreign Exchange Contracts 

Forward Foreign Exchange Contracts (FECs) allow you to set an exchange rate now, that can be applied to foreign currency requirements at a pre-determined future date. A FEC can provide protection against adverse exchange rate movements, giving you a known New Zealand income or cost in advance.

  

Advantages     

• You can fix an exchange rate to help you budget for your future income/expenses; you have a known exchange rate
• The expiry of the FEC can be constructed to match the cash flows of the commercial/physical transaction

Disadvantages

• You cannot take advantage of any favourable exchange rate movements; there can be opportunity losses
• You must be aware that FECs are fixed price obligations
• In the event of commercial transaction failures, losses under FEC settlements could significantly affect your financial position
  
  

Foreign currency options 

These options offer you protection against adverse exchange rate movements over a specified contract period, as well as the opportunity to take advantage of any favourable movements in the exchange rate. For this flexibility, a premium is payable up front.

Advantages     

• The buyer can take advantage of a more favourable rate in the market if it occurs at expiry date
• The buyer has a known worst-case rate that will apply to the transaction. The cost is limited to the premium expense whether or not the option is exercised
• Options are particularly useful where there is uncertainty as to whether the underlying commercial transaction will take place or where there could be production failure
• No credit application is required when purchasing an option
• Expiry of the option can be constructed to match the cash flows of the underlying commercial transactions

Disadvantages

• An upfront premium is payable
  
  

Order watch

Through its global network, Rabobank enables you to make transactions at nominated price levels, eliminating the need to constantly monitor the markets.