Valutahheding

Valutahheding, or currency hedging, is the practice of reducing the risk that exchange-rate movements will adversely affect the value of cross-border cash flows, assets, and financial results. It is commonly used by corporations with international sales or procurement, by financial institutions managing multi-currency portfolios, and occasionally by individuals with exposed assets. The aim is to stabilize earnings, cash flow, and reported value against foreign exchange volatility.

The main tools are forward contracts, futures, options, and currency swaps. A forward locks in a rate for a future date, reducing uncertainty about the amount of domestic currency to be received or paid. Options give the right, but not the obligation, to exchange currency at a specified rate, offering downside protection with potential upside. Swaps involve exchanging cash flows in different currencies over time. Natural hedges, such as matching revenues and costs in the same currency, are another approach.

Hedging typically targets transaction exposure, which arises from specific receivables and payables; translation exposure, from consolidating foreign subsidiaries; and economic exposure, from long-term effects on competitiveness. The choice of instrument depends on the desired balance of protection, cost, and flexibility.

Example: A US company expecting EUR 2 million in six months may enter a EUR/USD forward to lock the rate now, or buy EUR options to retain some upside if the euro strengthens.

Hedging incurs costs and can reduce upside potential if the currency moves in a favorable direction. There is also basis risk and counterparty risk. In many jurisdictions hedge accounting rules allow portions of gains and losses to be recorded in other comprehensive income or offset in earnings when the hedge is effective, subject to documentation and testing requirements.