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Here are brief descriptions of some of the currency hedging instruments offered by Wachovia.
A way of converting foreign currency into U.S. dollars or making a payment in a foreign currency. A spot contract allows you to buy or sell foreign currency at today's exchange rate, with final settlement occurring, in most cases, two business days later.
A way of eliminating exchange rate risk when you are to receive or make a foreign currency payment in the future. A forward transaction enables you to buy or sell a currency at a fixed rate on a specified future date. By linking this date to the date of your currency payment, you in effect lock in the exchange rate you want and eliminate the risk of future volatility. Wachovia offers short and long-dated forwards in a variety of currencies.
A window forward contract gives you a range of days (a "window" of time) on which to buy or sell the foreign currency. Window forwards are often used when there is uncertainty regarding the actual payment date.
Options are contracts that, for a fee, guarantee a worst-case exchange rate for the future purchase of one currency for another. Unlike a forward contract, the option does not obligate the buyer to deliver a currency on the settlement date unless they exercise the option. Foreign exchange options thus protect you against unfavorable currency movements while allowing you to participate in favorable movements.
A way for a corporation with recurring cash flows in a foreign currency, or one seeking financing in a foreign country, to eliminate exchange rate risk. With a currency swap, you simultaneously purchase and sell a given currency at a fixed exchange rate and then re-exchange those currencies at a future date allowing you to convert a stream of cash flows in one currency into another currency at a fixed exchange rate.
A way to hedge exposures in emerging market currencies where a conventional forward market does not exist or is restricted. Like a conventional forward, a non-deliverable forward makes it possible to hedge future currency exposure. However, in contrast to a conventional forward, a non-deliverable forward is settled in U.S. dollars and involves no physical exchange of foreign currencies at maturity.
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