FX Optimal Hede Ratios
Not really sure if this is in the right place, so sorry if it is not. I was wondering how companies calculate how much of their foreign currency exposure to hedge against currency rate changes (with forward contracts) so that they get the best balance of low risk and low carry cost (price of contracts). Any insight into this would really help me a lot.
Thanks!
I'd try the corporate finance forum, and maybe a treasury guy can give you a better answer...
Every company will be a bit different.. what's our net exposure, where are we exposed.. For example if we're a services company in the US and have employees all over the world, we are probably concerned with labor costs. So we hedge our FX exposure based on the currency our employees are paid in.
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