FX Exposure
The degree to which a business’s financial results are affected by exchange-rate movements. It arises from foreign-currency sales, purchases, assets, liabilities or forecast cash flows.
Related terms
Hedging
Taking an offsetting position to reduce the impact of currency or price movements on a business. The aim is to protect margins and make cash flows more predictable, not to speculate.
Read full definitionNatural Hedge
Reducing currency risk by matching revenues and costs in the same currency, so gains and losses offset without a financial instrument, for example, paying suppliers in the currency you also earn.
Read full definitionMark-to-Market
Revaluing an open position at the current market rate to show its present gain or loss. Hedges are marked to market so a business can see the live value of its contracts.
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Forward Points
The amount added to or subtracted from the spot rate to price a forward contract. They reflect the interest-rate difference between the two currencies over the contract period.
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A hedging strategy that combines buying a protective option and selling another to offset the cost. It caps downside risk within a defined range while keeping some upside, often at little or no premium.
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A request for additional funds when an open hedging position moves against you and its mark-to-market loss exceeds the collateral already posted. It restores the required security buffer.
Read full definitionDeliverable Forward
A forward contract that results in the physical delivery of currencies on the settlement date, with both parties exchanging the actual currencies as agreed.
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The rate at which two currencies can be exchanged on a pre-set future date.
Read full definitionNDF (Non-Deliverable Forward)
A forward contract settled in cash rather than by physical currency delivery. NDFs are commonly used for currencies with trading restrictions or capital controls.
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