Polishing Forex Hedging

As FX volatility grows, companies look for hedging solutions that provide a mix of automation, outsourcing and personal attention.

Bally Technologies intends to keep cashing in on the global popularity of gaming but wants to keep gambling out of its treasury. Like many middle-market companies, the $880 million designer, manufacturer and distributor of gaming devices is making money in a precarious global market where currencies swing wildly in value, often daily, and one major currency’s survival may be in doubt. So Scott Edgeworth, the Las Vegas-based company’s controller for treasury and risk management, is hedging its bets, something that seemed unnecessary until three years ago.

As business has become more global and the perils of leaving major currency positions unhedged have grown ominous, treasury pros like Edgeworth are searching for hedging solutions that provide the right balance of automation, outsourcing and personal attention.

Good hedging “takes a lot of good information and a solid understanding about how currencies flow through your financials,” says Helen Kane, president of Cupertino, Calif.-based Hedge Trackers. Balance-sheet hedging deals with transactions already booked, Kane explains, while cash-flow hedging involves anticipated transactions.

Companies usually use forwards to hedge balance sheets and forwards, options or collars for cash-flow exposures, she says. “It’s rare to see structured instruments because they generally don’t qualify for hedge accounting treatment.”

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