The FX Exposure Nobody Hedged
A Ghanaian exporter expects to receive USD 4.0m in 90 days for goods shipped. The spot rate is GHS 12.10/USD. The 90-day forward is GHS 12.55/USD. The exporter's treasury forecasts the spot rate in 90 days at GHS 12.80/USD, but the CFO is nervous: a 5% adverse move would cost GHS 2.42m. The company's operating margin on the deal is 12%, and its functional currency is GHS. Forward contracts are available for the full amount; a 90-day money-market hedge (borrow USD now, convert, invest GHS) is also possible. The board's policy states that unhedged FX exposure must not exceed 25% of any single receivable.
1. Quantify the outcome of hedging forward versus remaining unhedged, and test the policy constraint.
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Forward hedge: USD 4.0m × 12.55 = GHS 50.20m locked.
Unhedged at forecast spot (12.80): GHS 51.20m - GHS 1.0m better than the forward, but this depends on a forecast, not a certainty.
Unhedged at 5% adverse move (12.10 × 0.95 = 11.495): GHS 45.98m - GHS 4.22m worse than the forward.
Policy test: The policy caps unhedged exposure at 25% of the receivable, i.e., 25% × 4.0m = USD 1.0m may remain unhedged. Hedging the full USD 4.0m satisfies policy; hedging nothing breaches it.
Judgement: The forward rate of 12.55 versus spot 12.10 embeds a forward premium reflecting interest-rate differentials - it is not a 'bad' rate, it is the market's priced expectation. The CFO's downside (GHS 4.22m loss on a 5% move) dwarfs the 12% operating margin on the deal, so the risk is material.
2. Recommend a hedging structure consistent with the board policy.
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Recommendation: Hedge at least 75% (USD 3.0m) forward at 12.55, locking GHS 37.65m, and leave up to USD 1.0m (GHS 12.10m at spot) unhedged within policy. This gives a blended floor near GHS 49.75m while retaining upside on the unhedged tranche.
Why not the money-market hedge? It requires borrowing USD now and converting, which introduces a GHS funding cost and ties up balance sheet; the forward achieves the same economic lock with less operational friction for a 90-day exposure.
Governance point: The forecast of 12.80 is a view, not a fact. The board policy exists precisely to prevent treasury from running an unhedged directional bet on the cedi. Hedging 75% satisfies policy, protects the margin, and preserves limited upside. Document the residual 25% as policy-compliant, not as a speculative position.