Managing Currency Risk

An FX Forward allows you to fix a future exchange rate to manage a cash flow or payment / receipt now.

If you know you will need or will receive an amount of currency on a future date, then an FX Forward gives you certainty on the exchange rate for that transaction ahead of time. On the date you’ve selected, the currency will be exchanged at the rate you have accepted in advance.

Note: If the actual exchange rate is more favourable to you on the settlement date, then you will still be obliged to transact at the rate agreed in the FX Forward. Cancelling the contract can incur break costs which may be substantial.

A Flexible Forward (or Time Option) is like an FX Forward but it gives you more flexibility on the timing of the exchange.

If you know you will need or receive an amount of currency in a future window of time, for example a 3-month period, then you can fix an exchange rate for that period. You can execute your transaction at any date in that period at the rate you have accepted in advance.

Alternatively, you may need access to an amount of currency over a window of time. A Time Option will allow you to draw down from the total amount in smaller amounts throughout the window at the pre-agreed rate.

Note: The total amount of the Time Option will need to be exchanged before the end of the window otherwise the remaining balance will be exchanged on the final day of the window. If the actual exchange rate is more favourable to you on the settlement date, then you will still be obliged to transact at the rate agreed in the contract. Cancelling the contract can incur break costs which may be substantial.

FX Orders can automatically convert currency for you if the exchange rate reaches the level you have selected.

If you have a target exchange rate in mind then you can submit an order and we will automatically execute the transaction on your behalf if that level is reached. The order can be cancelled at any time (prior to execution) by you.

You can also submit a call order which will trigger a call from a specialist if your target rate is met so you can discuss whether you want to make the transaction.

Note: This is not available in all markets and execution will be done on a best effort basis. Where margin is applied, you will be made aware of the required market FX rate to fill the order as well as the all-in rate when the order is agreed.

An FX Swap can be used to adjust the timing of a transaction by switching cash flows between different currencies.

A swap is a binding agreement to buy or sell a certain amount of foreign currency at a pre-agreed rate of exchange (the near leg) and then sell or buy back a pre-agreed amount of foreign currency at a pre-agreed rate of exchange on a settlement date in the future (the far leg).

If you have entered into an FX Forward and the timing of your expected cash flow has changed, you can use a Swap to switch the delivery date nearer or further into the future. This will be dealt at the prevailing rates at the time of the Swap transaction.

To access FX Risk Management products you will need to be an existing HSBC Business customer and complete our straightforward Markets on-boarding process. This process includes:

• Authorisation from your Relationship Manager that these products are suitable for your business
• Completion of the necessary documentation which will vary depending on your country’s regulatory requirements
• Credit approval on appropriate credit lines which determine how much foreign exchange you will be able to transact with HSBC

Speak to your Relationship Manager about an introduction to Markets and they will be able to assist you through the process.

HSBC Evolve is available to HSBCnet customers who have been on-boarded to Markets. Setup is quick and you will be guided through how to use the platform via our online training tool. Register your interest with your Relationship Manager or a Markets representative. If you are not already a Markets customer, your Relationship Manager will be able to advise on the process to become one.

FX Risk Management products can help protect you against movements in exchange rates which could result in it costing more to conduct your business internationally. Fixing the exchange rate in advance, at a level you are comfortable with, can give you certainty and peace of mind in planning for your business.

Hedging solutions are classified as derivative products in accounting terms. They typically involve a contract that holds an obligation spanning a period of time and modern accounting conventions require a value to be placed against these contracts. HSBC can partner with you and your accountants who can assist you and provide the necessary documentation to meet these requirements.

If you wish to terminate the products early, you could incur a cost which may be substantial. We will determine this cost based on a number of factors including (but not limited to) prevailing exchange rates, interest rates in the underlying currencies, the term of the product, and any costs incurred by HSBC as a result of the early termination. As such, you should only enter these products if you are prepared to fulfil the obligations under the contract.