Increasingly the management of interest rate swaps is becoming a requirement for corporates, governments and anyone managing debt.  This interest rate swap tutorial is designed to give you a baseline understanding of interest rate swaps and how they work – including valuations and reporting with specific reference to LIBOR and SONIA for those in the UK.  It is based on our Interest Rate Swaps eBook which you can also download for reference – it includes the following content plus some more technical detail in the Appendix. Why we need an interest rate swap tutorial The interest rate ..read more

Import and export companies globally, face the daunting task of dealing with foreign exchange risk that can easily alter revenues from overseas. While we often think of FX risk in terms of large companies, for those with smaller cash reserves, exchange rate fluctuations can be the difference between profits and losses. FX volatility impacts large and small FX volatility makes it difficult for firms, both large and small alike, to accurately price products sold overseas where a non-domestic currency is used. For companies in Australia for example, overseas sales are rarely calculated in Austra ..read more

We have a identified a common difficulty many companies face when using path dependent options, such as leveraged collars or participating forwards. The issue is being able to predict the amount of cover in place under different market conditions. Let’s look at an example: UK based importer hedging EURpayments FX product = leveraged collar Leverage ratio = 2 for 1 Protection amount = EUR250,000 Participation amount = EUR500,000 Expiry = three months Protection rate = 1.1600 Participation rate = 1.1700 What are the possible outcomes? The spot rate at the expiry date of the leveraged collar w ..read more

CVA (credit value adjustment) and DVA (debit value adjustment) are now commonly used terms and considered standard fare for audit. But that wasn’t always the case. We look at how far we have come on the CVA compliance and audit journey in the last decade. There is no doubt that CVA (credit value adjustment) and DVA (debit value adjustment) were front of mind in 2014. Corporations with a 31 December balance date and outstanding financial instruments discovered there was now something else to be calculated for inclusion in the annual accounts. We moved from a world where a valuation was just som ..read more

Financial year-end for many Australian and New Zealand public and private companies, as well as Councils, is a time of stress and added complexity . With an ever increasing compliance burden, we have put together a practical financial instrument check list for those entities that have exposure to financial instruments such as FX forwards, FX options and interest rate swaps. Those familiar with the international accounting standards understand the minefield of financial instrument compliance. We have tried to boil them down to five simple, practical and fundamental items for you to check off: 1 ..read more

There is certainly nothing new in fluctuating credit conditions and the impact CVA/DVA regulations have had on reporting. The chart below looks back at Australian bank and corporate credit spreads over the last 15 years. The overall trend has been downwards with spikes every three to four years or so. In the last 12 months we have seen a return to that downward trend for banks but not so much for corporates. So, what does this mean for the materiality of CVA/DVA and adjustments at financial year-end?   First, some history. The introduction of IFRS 13 in January 2013 was, in part, recogn ..read more

We always love it when customers share the journey they have taken with Hedgebook. Absa CIB – one of South Africa’s leading commercial banks and previously partly owned by Barclays Bank – recently revealed its Hedgebook story.  In partnering with Hedgebook, Absa CIB has been able to give corporate treasurers across its client base access to live currency and FX risk management, as well as interactive forecasting and scenario planning. It’s a great example of bank driven FX hedging innovation. Like many banks, prior to partnering with Hedgebook, Absa’s client companies largely used spreads ..read more

The last three years have seen an awakening  in global awareness of the need for interest rate risk management functionality – as a response to heightened inflation. Post COVID consumer led demand coupled with energy and food price shocks because of Russia’s invasion of Ukraine has prompted central banks to hike interest rates at breakneck speed. History has shown the damage embedded inflation can do to an economy and how difficult it can be to tame it, hence central banks desire to get on top of it as quickly as possible. Although there are signs that interest rates may have peaked, it s ..read more

Hedgebook CEO Richard Eaddy recently spent a few weeks in London catching up with corporate clients, banks, brokers and other fintech providers. It seems timely to note some of his observations from time spent in this influential market – other than the pubs being full on Thursday and the city of London emptying out on Fridays. Having been based in London with Hedgebook in the lead up to Brexit and beyond  – as well as experiencing the slowdown due to Covid – Richard was pleased to see London banks seem to have turned the corner. But as the old saying goes, it can be a bit like turning th ..read more

Forex exchange (FX) risks are as unpredictable as global weather, and for businesses operating in the import and export domain, these risks aren’t mere numbers. They are potential game-changers. If you’ve been managing FX exposure for your company, you’d know that understanding these metrics isn’t merely about crunching numbers. It’s about securing business objectives and, more importantly, steering the company towards sustained growth. Between the challenges of obtaining real-time valuations, grappling with unexpected margin calls, and striving for streamlined reporting, the world of foreign ..read more