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Corporates prepare for RMB hedging and US corporates are revising FX hedging strategies

FX-Week report that “corporate treasurers are considering a more proactive approach to hedging Chinese renminbi exposures and some are poised to commit more resources in response to the emergence of two way volatility in the market.” This change comes after the spike in the RMB’s volatility at the start of the year, thought to have been caused by PBoC aggressive action against long-only volatility.

Foreign Exchange 2014 Risk Management Practices Survey

The Wells Fargo ’Foreign Exchange 2014 Risk Management Practices Survey’ of 276 public and private US companies also shows that Chinese yuan is growing in importance with it being traded by 14% of respondents - double the number for Brazilian rupee, and more than the Indian rupee. The survey found that:

  • most important FX risk management objective is to eliminate FX gains and losses (53%), with other main objectives being to protect budget rate, and to contribute to shareholder value
  • 86% of companies set budget for 12 months at time (91% public)
  • 71% of companies actively hedge FX balance sheet positions with nearly all using forward contracts
  • companies use a variety of partners to assist in FX hedge accounting - accounting/audit firm (44%), banks (40%), 3rd party vendor (30%).

Compared to the 2012 survey Wells Fargo found that:

  • attitudes to FX remain largely unchanged
  • more than 40% have developed or revised their FX policy
  • 20% have altered their mix of hedging instruments, but only 11% use FX options for business solution hedging
  • FX forwards remain the most popular contracts with 93% using
  • more companies now hedge their balance sheet, with 45% hedging thee-quarters or more, but one-third still hedge less than half of their balance sheet exposures
  • systemic FX risk strategy is used by 65% of respondents, while usage of dynamic hedging strategies declined to 5% of respondents.

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