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How is FX hedging incorporated into your Rolling forecast? (Webinar Attendee Question)

This question was asked by an attendee during the Proformative webinar "New Ways of Looking into the Future - Rolling Forecasts" held on December 4, 2012.

A video of the webinar can be viewed here:


Bryan Dehmler-Buckley
Title: Director, Product Management
Company: Host Analytics
(Director, Product Management, Host Analytics) |

FX hedging can be incorporated into a rolling forecast by establishing a model within the system that allows you to review your results based upon different currency strategies. This could be as simple as designing scenarios that allow you to look at forecasts at different rates (budget vs forecast rates for example). In addition you could setup a template that allows you to review your data based upon different FX strategies. This will be particular to your individual use case but it wouldn't be materially different than creating drivers, using those drivers on a template, and viewing/analyzing the results all within a single template.

(Treasury Manager) |

If your company is hedging future revenues or expenses, the hedge rate can be incorporated into the forecast.

Title: Senior Treasury Consultant
Company: Kyriba Corp
(Senior Treasury Consultant, Kyriba Corp) |

I agree with Bryan: this approach in template is quite common in the most efficient forecasting systems.
FX exposures and hedging flows are particular because they might not be reported with the same intricacy as budgets. Our clients often use generic exposure reporting per currency and company, while budgets (even in foreign currencies) will be categorised further. Final FX hedging flows are also reported at a global level in order to present net figures such as net hedged position per company.

It depends on how your FX hedging program is structured, really: some clients do it from a balance sheet perspective (not even considering the individual group companies, just the currencies), some with a bit or a lot more details. I have worked with clients which would purposedly avoid hedging non-USD balances, interests, charges and fees because their program was only related to capex cashflows.

Topic Expert
Helen Kane
Title: President
Company: Hedge Trackers, LLC
(President, Hedge Trackers, LLC) |

It is critical to know how the hedges impact your financial statements to understand how to incorporate them in the forecast process. If you are hedging 3rd party non-functional revenues and expenses then you can use the hedge rates in your forecast to very accurately predict the USD value of those transactions in income: e.g. if you are hedging 90% of your INR expenses for Q3, when forecasting Q3 expenses from India you would use the weighted average hedge rate. Presumably the hedge rate would change as you approach a quarter and you would adjust your forecast rate. If only 50% of expenses were hedged you would weight the forecast 50% based on the hedged rate and 50% on current rates (maybe padded a little).
It gets more complicated as you start hedging interco activity as a proxy for 3rd party transactions. It then depends on where the hedge results reside and the timing lag between stopping the hedge accounting (at interco ship) and recording the 3rd party activity. This might be a great topic for proformative to provide insights into.

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