Hedging and Risk Management Strategies

Your bridge to the world.cambridgefx.com □ info@cambridgefx.com

“Cambridge Global Payments” is a trade name used by the following legal entities: Cambridge Mercantile Corp., Cambridge Mercantile Corp. (U.S.A.), Cambridge Mercantile Corp. (UK) Limited, Cambridge Mercantile (Australia) Pty. Ltd. Cambridge Mercantile (Australia) Pty. Ltd. operates under ACN No. 126642488 and AFSL No. 351278. Cambridge Mercantile Corp. (UK) Limited is registered in England and Wales, Company No. 5271222, and is authorised by the Financial Conduct Authority under the Payment Service Regulations 2009, No.504473 for the provision of payment services, and by HMRC as Money Services Business No. 1219985. Cambridge Mercantile Corp. (UK) Limited is registered with the Information Commissioner’s Office Registration Number ZA031019.

It is critical for any organization to understand how the myriad of risk management tools and products available actually apply to their unique foreign exchange exposure. In general, risk management products are designed to stabilize cash flows and protect budgeted rates in a volatile environment.

At Cambridge, we work with our clients to collaboratively identify and manage increasingly complex currency exposures. By following our complete, five-step process, we will help you implement a hedging strategy that is uniquely tailored to your business and financial goals.

Benefits to Hedging

Capture upside risk while protecting against downside risk

Smooth out short-term earnings volatility

Manage your liquidity or solvency, and debt obligations

Certain products may offer the advantage of zero premium

Protect your reported earnings per share by hedging your balance sheet

Protect your balance sheet for your assets and liabilities being held in foreign currencies

Insulate investment from downside while still retaining some upside exposure

We work with you to build a hedging strategy that best fits your market position. This is a dynamic, fluid process in which your account manager provides regular market updates, coupled with product information that allows you to consistently protect your profit margins, while still remaining flexible and having the ability to participate in favorable market movements.

IDENTIFYthe nature of FX exposure1

2

3

4

5

DEVELOPa simple Risk Management policy

SELECT tools and productsthat best achieve your goals

EXECUTE your strategy; evaluate and adjust for changing markets

Hedging and Risk Management Strategies

Your bridge to the world.cambridgefx.com □ info@cambridgefx.com

“Cambridge Global Payments” is a trade name used by the following legal entities: Cambridge Mercantile Corp., Cambridge Mercantile Corp. (U.S.A.), Cambridge Mercantile Corp. (UK) Limited, Cambridge Mercantile (Australia) Pty. Ltd. Cambridge Mercantile (Australia) Pty. Ltd. operates under ACN No. 126642488 and AFSL No. 351278. Cambridge Mercantile Corp. (UK) Limited is registered in England and Wales, Company No. 5271222, and is authorised by the Financial Conduct Authority under the Payment Service Regulations 2009, No.504473 for the provision of payment services, and by HMRC as Money Services Business No. 1219985. Cambridge Mercantile Corp. (UK) Limited is registered with the Information Commissioner’s Office Registration Number ZA031019.

Foreign Exchange Swaps

These are contracts wherein one currency is sold against another at inception, with a commitment to re-exchange the principal amount at the maturity of the deal in order to deploy cash resources as efficiently as possible. These swaps are structured as spot trades combined with offsetting future-dated forward contracts, so that net foreign exchange exposure is removed and funds are positioned where needed.

Non-Deliverable Forwards

Non-Deliverables fix the exchange rate at a defined future date, where delivery of a foreign currency does

not occur. Instead, the difference is settled between the contracted rate and the spot price at expiry in domestic

currency. Non-Deliverables are used to protect against exchange rate movements in inaccessible markets, or

where delivery of a foreign currency is not required.

Vanilla Options

These are financial contracts giving you the right, but not the obligation to buy (known as a “call”) or sell

(known as a “put”) a stated amount of a currency at a predefined price over a certain period of time. Due to

this functionality, Vanilla Options are typically only used to protect uncertain future cash flows against exchange

rate volatility.

Structured Options

These are contracts that simultaneously use a combination of Vanilla Options and other special features to create a customized hedging instrument designed to fit a particular situation or capitalize upon a potential market outcome. We can offer a variety of structured options to suitable, qualified parties. Contact a Cambridge Options Specialist to determine your needs and to view our literature on these products.

□ The most common hedging tool, forward contracts, fix a defined future date at which to buy or sell a stated amount of currency at an agreed rate. All forwards can be booked through our leading-edge trading platform, Cambridge Online.

□ You also have the option of an “Open” forward, which allows the flexibility of an open time period in which to settle. Open forwards also allow you to draw down against the original amount contracted.

□ Fixed forward contracts are used for buying or selling currencies that are date-sensitive. The transaction is completed for the total amount of the contract on a specified date.

Forward Contracts

Some other types of hedging tools include: