Foreign Exchange (FX) Strategies:Internal Hedging Method/Technique (Part 2 of 4)

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The previous article dealt with the Leading and Lagging Method of internal hedging.

Let’s move on to the next method which is the:

Matching Method

Here the intention is to offset all the company’s foreign currency payables with the appropriate foreign currency receivables. The net amount is then hedged. The matching method depends on a reliable cash-flow reporting systems by individual currency. In fact centralized matching requires high sophisticated on-line cash flow tracking abilities for each currency. Matching method is conducive to many international trading organizations as there have a lot of international trade hence the greater is the matching possibilities.
Here the intention is to offset all the company’s foreign currency payables with the appropriate foreign currency receivables. The net amount is then hedged. The matching method depends on a reliable cash-flow reporting systems by individual currency. In fact centralized matching requires high sophisticated on-line cash flow tracking abilities for each currency. Matching method is conducive to many international trading organizations as there have a lot of international trade hence the greater is the matching possibilities.

The advantages of matching are:

2.  
   • Only unmatched values are hedged,hence currency flows are reduced,
   • Reduced of banking charges and elimination of exchange spreads on the netted amount
   • Where matching is centralized,co-ordination of the group’s exposure allow greater management control including tax planning.

Please refer the Netting Method in Part 3 of the article.

• FX Foreign Exchange Strategies:Internal Hedging Method (Part 3 of 4)
• Foreign Exchange Management:Internal Hedging Method (Part 4 of 4)
• Foreign Exchange Management:Internal Hedging Methods (Part 1 of 4)
• Foreign Exchange Strategies:Managing FX/Foreign Exchange Transaction Exposure Risk
• Foreign Exchange Strategies:Operation/Management Policy And Procedures
• Malaysia Moving Forward – Foreign Exchange Administration /Liberalization of Foreign Exchange Regulation
• Foreign Exchange Management:Before Even We Consider Hedging Strategy