Bloomberg Professional Services
Is standard hedging costing you more than the risks you’re avoiding?
Many corporate treasurers assume that the routine rolling of FX forwards or commodity futures every few months constitutes a complete hedging strategy. In reality, traditional techniques often contain hidden shortcomings that can erode the very margins they are meant to protect.
As Chintan Shah, Bloomberg’s Global Head of Buyside Treasury, ALM and Finance, explains, these conventional strategies frequently suffer from “market slippage”. Every time a hedge is rolled, returns are chipped away. Instead of neutralizing long-term exposure, a standard roll policy often defers the inevitable FX impacts, reducing overall returns over time and affecting the firm’s bottom line.
As treasurers navigate the complexities of funding and repatriation risk in a volatile climate, FX remains the most salient risk, as diversified investment portfolios and global operations generate cash in a multitude of currencies.
The shift to sophisticated matching
To avoid the slippage trap, forward-thinking firms are moving toward more sophisticated hedging methods. One such approach is the use of cross-currency swaps, where FX cash flows are matched to the swap instrument.
This strategy is particularly beneficial for insurers, asset owners and resource-focused corporations, who are increasingly moving away from fragmented data and manual spreadsheet bridges. With the right tools and processes in place, firms can bundle their interest rate and FX risks into a single, cohesive strategy.