Vive la Revolution
2017 is a critical year for European politics not to mention the triggering of Article 50 and Trump.
Annual turnover: £60m
The client had been receiving sales income in US dollars on a bi-monthly basis, converting the proceeds into sterling via spot deals. Investec’s treasury team was mandated to find a way for the company to manage its income from dollar sales in a more effective way.
The first step for Investec was to work alongside the company in order to observe how much visibility it had on its dollar conversion needs in any given month. Based on the previous 12 months, it was clear that a standard month would see the client convert up to $2 million each month.
The treasury team discussed the possibility of hedging a proportion of this amount, therefore enabling the client – which had not considered such a strategy before - to lock in a favourable rate via a forward transaction. This would give the client the certainty that at least a part of its income would be protected at a rate with which it was comfortable.
The client elected to put in a strip of forwards over a 12-month period, (covering the two delivery dates) each month and ensuring a guaranteed a worst case rate. and the potential to benefit from favourable market moves.
Should the market move more in the client’s favour, the use of this tailored product would allow them to participate in the upside and sell dollars at a more favourable rate.
By helping the client to move away from the spot market, Investec Treasury removed its vulnerability to volatility in the exchange rate between sterling and US dollars, with a potential opportunity to participate in any favourable moves in the currency pair.
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