Need to hedge currency exchange rate

Discussion in 'Options' started by sync, Sep 22, 2008.

  1. sync


    I will be having money coming to the US in Canadian dollars some time in the next three to six months. How do I go about hedging the exchange rate with options? Are options as effective as futures or forex for this?
  2. No....The best way to hedge is to buy the CAD now, if you don't have money to buy CAD then you are out of luck. If CAD goes up in the next 3-6 months you gain, if CAD goes down in the next 3-6 months you lose. But you lock in todays rate.
  3. sync


    What is the second best way? I pretty sure you can hedge currencies.
  4. Borrow USD to buy the CAD, I assume this is a USD/CAD transaction. selling one for the other.
  5. sync


    That isn't hedging.

    What about fx options?
  6. Then how do you lock in todays USD/CAD exchange rate? That is what you want to do, isn't it? If you want to get fancy with your "hedge" then check out what Canada exports to the USA and buy it with your USD. Petroleum is number 1 export.
    I'm not familiar with them, but the last time I checked they were very expensive.
  7. Hi forex-forex,

    Are you sure about that? I thought it was to sell the CAD against USD but I'm really sleepy now, I may say something wrong. Correct me if I'm wrong.
  8. Yes......He would sell the CAD once he receives it in 3-6 months.

    Since he doesn't have it he would have to buy CAD now with USD to lock in todays USD/CAD exchange rate and hold until he receives the CAD. Once he gets paid in CAD he then closes the position by selling CAD for USD.
  9. sync


    I checked out CAD options at PHLX and they are indeed too expensive to make hedging feasible.
  10. I'm sorry but that way he would have twice expositions on CAD; the first he buys now, the second when he would receive the CAD.

    He will receive CAD, the best way is to short CAD now, and then once he gets paid in CAD in 3 months, he will be flat.

    OP, If options are too expensive, try option spreads. :)
    #10     Sep 22, 2008