{"id":6901,"date":"2024-03-25T14:35:23","date_gmt":"2024-03-25T14:35:23","guid":{"rendered":"https:\/\/hamiltoncourtfx.com\/?post_type=case-study&p=6901"},"modified":"2026-04-01T11:15:54","modified_gmt":"2026-04-01T10:15:54","slug":"hedging-policy-creation","status":"publish","type":"case-study","link":"https:\/\/hamiltoncourtfx.com\/it\/case-studies\/hedging-policy-creation\/","title":{"rendered":"Hedging policy creation"},"content":{"rendered":"
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Scenario<\/h2>\n <\/div>\n
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Our client is looking to external investors to raise money and wants to demonstrate discipline and prudence, even whilst running a high growth business.<\/strong><\/br><\/br><\/h5>\n

With FX playing a large part in their business, a well-documented treasury policy is vital.<\/p>\n

We\u2019d been working with this client for a little under a year when they said they wanted to formalise their processes and get their documentation in order.<\/p>\n

They\u2019re a fast-growing retail business, with sales in Europe and the US, and manufacturing in the UK, so a lot of currency sensitivity and multiple income streams.<\/p>\n

Underlying their desire to get things in check is the need to raise money to continue their growth and probably accelerate it. Their logic \u2013 which is completely sound \u2013 is that a business with a well-documented strategy and process is probably more appealing to a wider range of investors and could lead to a better valuation.<\/p>\n

Roll on a treasury policy\u2026<\/p>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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Solution<\/h2>\n <\/div>\n
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We already know the hedging strategy and the process are fit for purpose. <\/strong><\/br><\/br><\/h5>\n

They\u2019re a lean team with a low risk threshold, so they use vanilla forwards with a bit of flexibility built in to give their cashflow a bit of a breather when necessary.<\/p>\n

As a growing business, their forecasting isn\u2019t as accurate as they would like it to be, so we allow for that when we come to booking the correct amount of FX coverage.<\/p>\n

Their clients pay on a combination of short terms or on a pro-forma basis and they set their budget rate annually, but update their budget rate quarterly if their realised rates deviate by more than 5% from the budget.<\/p>\n

With the above information, we\u2019ve already got most of the policy, it\u2019s just a case of documenting it and we\u2019ve done this by following a pretty simple formula:
\n– Identifying the risks that you face<\/strong>
\n– Establishing your appetite for each risk<\/strong>
\n– Agreeing how you manage each level of risk<\/strong>
\n– Assigning who manages risk, and which counterparties you manage it with<\/strong>
\n– Reporting on the risk, including: who, how, and what for?<\/strong><\/p>\n

We know that the risk comes from receiving foreign currency income and there being an exposure to the FX market and also a possible variation against the company\u2019s internal budget rates.<\/p>\n

We also formalised how they would determine their budget rates, so that no one person could \u2018take a view\u2019 on the market that might lead to a chasm between belief and reality.<\/p>\n

With fine margins, we know that risk appetite is limited. And that because forecasting isn\u2019t as strong as they would like it to be, we\u2019ll use some of their limited appetite to think about the size of the hedges, rather than taking risk to try and improve the overall rates achieved.<\/p>\n

There really is only one level of risk here, as the funds flow is uniformed, so we don\u2019t need to spend long thinking about different situations \u2013 but as the business develops, we\u2019ll re-visit this.<\/p>\n

The team is small, but having defined responsibilities and sign off is good practice and easy to abide by, so we\u2019ll bring those in.<\/p>\n

Reporting on the risks being managed, how the policy is performing and what could be improved – that\u2019s down to us and we do this with quarterly check ins and an annual deep dive ahead of the next year\u2019s sign off.<\/p>\n

A good last practice to adhere to is version control. With your policy being a live document, it\u2019s always good to know what previous iterations were and who changed them and why<\/p>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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Implications<\/h2>\n <\/div>\n
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Formalising a process that is already effective can feel like a bit of a box ticking exercise. <\/strong><\/br><\/br><\/h5>\n

But by standing back and working on the process rather than within it, there\u2019s often areas you end up questioning and improvements that can be found \u2013 particularly when a fresh set of eyes, such as ours, take a look.<\/p>\n <\/div>\n <\/div>\n <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"","protected":false},"featured_media":6898,"template":"","rp-language":[16],"class_list":["post-6901","case-study","type-case-study","status-publish","has-post-thumbnail","hentry","rp-language-en_gb"],"_links":{"self":[{"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/case-study\/6901","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/case-study"}],"about":[{"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/types\/case-study"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/media\/6898"}],"wp:attachment":[{"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/media?parent=6901"}],"wp:term":[{"taxonomy":"rp-language","embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/rp-language?post=6901"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}