Companies want to reduce the effects that adverse currency trends have on their bottom lines and limit FX-induced volatility. One-year rolling exchange contracts are inadequate if adverse trends continue for years and to combat this, companies must re-evaluate their hedging strategies. Using advanced averaging methodologies and layering hedges over a period of years allow companies to factor in cashflow and earning forecast uncertainties. Corporate management can take control of a hedging programme by establishing criteria, which when triggered, execute a specific hedging strategy. A Purchasing Power Parity (PPP)-based hedging program, can also improve performance. PPP can also determine the best hedging instruments that are required at a certain point in time. It is the turn for European corporates to deal with the effects of a strong performance of the euro on foreign subsidaries, particularly those generating revenue in US dollars.
