Hedging of the currency risks
Set the exchange rate for direct and reverse transactions
For example, your business cycle at certain stages implies the need of dollar sale and euro purchase, aking the reverse exchange from euros to dollars afterwards. In order to avoid the costs of a double currency exchange (counter operations on the exchange of currencies) and natural risks caused by exchange rate ﬂuctuations, you can enter the currency swap.
Currency swap involves the simultaneous agreement on two transactions; in our example, the ﬁrst transaction is to buy the euros and the second to sell them back for dollars some time later. Therefore, the exchange rates for the ﬁrst and the second transactions are set in advance and already known. Consequently, you can adjust the expenditure part of the business cycle for the relevant costs while planning your work.
Set the exchange rate for certain date
For example, you purchase some goods or batch of products under a contract, in which all prices and amounts are ﬁxed in us dollars. However, to sell all these goods you plan only after some time and in euro.
In such situation currency risk arises. The source of risk is the volatility of the exchange rate, since you have to exchange income from euros to dollars after selling goods (or part thereof); while the exchange rate at the time of receipt of the income is unknown.
The solution in this case will be fx forward. It is the deal with the bank, in which you set the exchange rate in advance at any particular date in the future.
All currency risk then is taken by the bank, and no matter what will be the rate of the euro against the dollar at the time of ﬁnal payment.
Non-delivery forward (ndf)
Set the exchange rate without any certain date
In case the timing and amounts of your transactions are not always amenable for planning, the most suitable instrument for you is non-delivery forward. Unlike the usual fx forward, you yourself, using the rietumu fx trading platform, have the option in the regime of 24/5 to set the exchange rate and to choose the date of exchange in accordance to your needs.