(This May 21 story has been corrected to change the company description in paragraph 2 to “multi-dealer FX platform” from “currency management company”)
NEW YORK (Reuters) – Companies are increasingly seeking to hold exchange rates for longer as they seek to protect their profits from the potential impact of currency swings that could follow elections expected around the world this year.
The largest firms are the most risk averse and implement the longest hedge windows – 7.5 months on average – according to research based on a quarterly survey of 250 senior financial decision makers at UK and US firms conducted by multi-dealer FX platform MillTechFX last month.
Hedge windows refer to the time frames companies use when purchasing currency hedges, and companies looking to extend this duration will typically prefer longer-dated options or forwards to shorter-dated options.
Nearly half of all respondents said they plan to increase hedging length because of the upcoming election, the survey found.
“In a year when more than half the world’s population in 80 countries goes to the polls, it is no surprise that geopolitics has a major influence on companies’ currency hedging decisions,” said Eric Huttman, CEO of MillTechFX in the research note.
The study also found that geopolitics and central bank policy were the two biggest influences on companies’ currency hedging in the first quarter.
The U.S. dollar is up 3.2% this year against a basket of major currencies, helped by the relative strength of the U.S. economy.
