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Making sense of hedging FX for use in China

Making sense of hedging FX for use in China
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Back in June, China announced that the Yuan fixed peg with the US Dollar will be replaced with a more flexible currency regime. At the recent G7 meeting in Washington this issue surrounding potential “currency wars” and protectionism was discussed. The US continued to criticise China’s currency strategy but failed to make any headway.

This has some significance for British companies who import goods from China. Most will ask for payment in US Dollars, but some are requesting Yuan.

If payment can be made in US Dollars, it will be worth taking a look at using financial exchange (FX) forward contracts. This allows you to lock in a rate based on market rate for that date. This would take out the risk of the FX market as your rate would be fixed.

Sourcing Chinese Yuan is more difficult, but there are specialist FX brokers like Corporate FX that can provide the currency on a spot basis. However, deliverable forward contracts are not available. To circumvent this inconvenience, companies can use Non Deliverable Forwards (NDF).

Jamie is a Trader at Global Reach Partners, managing client trades as well as businesses’ counterparty relationships.  Jamie has a degree in Economics and is also an MSTA qualified technical analyst.

Email:  jamiejemmeson@corporate-fx.co.uk

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