Common Structured Solutions
The below provides some of the more frequent solutions that we have seen marketed by banks.
Collar
An FX Collar protects against unfavourable exchange rate movements while allowing some upside potential.
It offers a cost-effective hedging strategy, setting both a maximum and minimum exchange rate, helping corporates manage currency risk with more predictability and reduced premium costs compared to standard options.
Participating Forward
A participating forward provides downside protection while allowing partial participation in favourable currency movements.
It enables businesses to secure a minimum exchange rate, with the flexibility to benefit if rates improve, offering a balance between risk management and potential gain.
It is particularly useful for those corporates that have difficulty precisely forecasting their exposures.
Knock-In Forward
A knock-in forward offers cost-effective hedging by activating only if the exchange rate reaches a predetermined level, allowing businesses to benefit from favourable market conditions while still protecting against adverse movements.
It combines risk management with reduced upfront costs compared to traditional forward contracts and upfront premium payable option products.
Accumulator
An FX accumulator allows businesses to purchase currency at a more favourable average rate over time, benefiting from gradual market movements.
It provides cost savings compared to spot rates, with the potential to gain from currency fluctuations, while ensuring regular, structured currency purchases.
TARF / TPF
A Target Redemption Forward (TARF) or Target Profit Forward (TPF) offers enhanced exchange rates and potential cost savings, allowing businesses to benefit from favourable currency movements until a target is reached.
It combines a degree of risk management with the opportunity for better-than-market rates, though with capped gains once the target is achieved.
This is an aggressive product that appeals to those corporates that are attracted rate enhancement.
Deal Contingent
A deal contingent forward secures exchange rates for M&A transactions, with the hedge becoming effective only if the deal closes.
This reduces risk without committing capital upfront, protecting against currency volatility while aligning the hedge with deal completion, minimizing potential losses if the transaction falls through.
It is a solution that has become popular with high frequency acquirors such as Financial Sponsors/Private Equity funds.
EAKO is well-placed to help you navigate the wide array of FCA-regulated institutions that provide such solutions.