Natural hedging

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Natural hedging (German: "natural hedging"; from English to hedge [ hɛdʒ ], "securing") is an Anglo-American term from business administration that has also become common in German technical language . The aim of natural hedging is to reduce the difference between income and expenditure in a given currency. This is intended to reduce the transaction risk, since the amount to be converted from one currency to another is smaller, the risk of losses from such a conversion is also lower. In contrast to hedging, hedging is not carried out through a financial measure, but through the design of the real economic conditions of a company .

Adjustment of the cost structure by currency to the revenue structure

It is assumed here that costs and expenses on the one hand and revenues and income on the other hand largely coincide over a longer period of time. If there are differences in the currency structure of the monetary flows , changes in exchange rates result in immediately realized exchange rate losses or gains; Corresponding differences in costs and revenues sometimes result in unrealized exchange rate losses or gains, which nevertheless burden a company's income statement and thus also represent a risk.

By choice of location

Natural hedging can also be used when choosing a company location. This can be achieved by companies relocating production capacities to sales countries in order to avoid exchange rate fluctuations. An example would be the Bavarian Motor Works , which have built up their capacities in the USA, among other things, to pay employees there with the US dollars earned in the US business. This means that no exchange is required to pay wages, production and sales take place in the same currency.

Through procurement policy

The procurement of goods and components in the currency in which the company's own services to customers are invoiced also helps to reduce risk.

By choosing the contract currency

Regardless of the location of production or the source of procurement, an export-oriented company can share its exchange rate risk with its suppliers and other contractual partners by agreeing a price for the agreed service in the currency in which the export proceeds are generated. In this way, domestic business partners assume part of the export risk for their customers.

Depending on the location, this principle can even be extended to wages. For Swiss companies that employ a large number of cross-border commuters , it may be of interest to offer these employees employment contracts denominated in euros .

No or only a very weak hedge is achieved if the currency in which the payment has to be made is changed to the currency in which the income is generated, but the amount is not fixed but is linked to the development of an exchange rate.

Adjustment of the revenue structure by currency to the cost structure

In purely formal terms, natural hedging could also take place by adjusting the revenue structure by currency to the cost structure by currency, i.e. H. you invoice the export customer in your own domestic currency, in which most of the costs are to be paid. However, since in most industries there is also serious competition from other currency areas , such a policy requires additional discounts if the value of one's own currency increases, as this otherwise means a price increase for foreign customers. In the end, exchange rate losses are not shown as such, but instead lower margins are achieved.

Extended definition

In the literature, the term natural hedging is sometimes also extended to cover translation risks. In this case, the aim is not to align the structure of flow quantities (income, expenditure) according to currencies, but rather to align the stock quantities . In particular, investments abroad are financed by loans in the relevant foreign currency. Changes in the value of the assets to be accounted for as a result of exchange rates are compensated for by corresponding changes in the value of liabilities . There is again a transaction risk with regard to interest and the repayment of loans in foreign currency.

literature

  • Managing Foreign Exchange Risks , White Paper from Export Development Canada (EDC), 2010 (English)
  • Dr. Erik Hofmann, Philip Wessely: Natural Hedging in Supply Chains - An Alternative Instrument for Supplier Financing, in: Supply Management Research - Current Research Results 2008 (editors: Ronald Bogaschewski, Michael Essig, Rainer Lasch, Wolfgang Stölzle), pp. 127-134
  • Björn Döhring: Hedging and invoicing strategies to reduce exchange rate exposure: a euro-area perspective ; European Communities - Office for Infrastructure and Logistics, Brussels 2008; ISBN 978-92-79-08224-5 (English)

Individual evidence

  1. ↑ s. EDC p. 6
  2. ↑ to be exchanged
  3. ↑ so z. B. Fr. Sauter AG , Basel
  4. ↑ s. Classification overview at Döhring p. 5

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