Available Instruments

The Polish currency market provides companies with access to many currency risk management instruments. In fact, the product offering is so extensive that even an experienced investor may have difficulty choosing the right instrument. The fact that the right choice hinges on accurate forecasts further complicates the decision.

The Most Popular Instruments

Spot Transactions

Spot transactions are used to hedge current exchange rates. Companies that are in possession of a foreign currency may enter a spot transaction to exchange it for zloty. The converted proceeds will be booked in the company’s account within two days.

Conversely, having zloty at its disposal, the company may, through a spot transaction, buy a foreign currency.

Automatic Roll-Over of Spot Transactions

Companies using online trading platforms may automatically roll-over spot transactions. The advantage of this approach lies in the ability to lock in the current exchange rate, even if the payment date is undefined. This very flexible approach enables trading with resting orders to take advantage of exchange rate swings.

Forward Transactions

Companies that have well-defined currency cash flow schedule may limit currency risk through hedging an exchange rate in the future. Forward contracts secure a future exchange rate irrespective of subsequent market movements – it is fixed when the transaction is executed.

Option Transactions

By transacting options, a company may effectively hedge against disadvantageous market movements, yet retain some upside potential. Option transactions hedge the importer against higher exchange rates and may permit a positive return, if exchange rates move favorably.

A Polish exporter who employs an option strategy will hedge against a stronger zloty, yet retain exposure to upside potential, which results from depreciation of the domestic currency.

Cost-Free Option Transactions

If a company is in a business in which moderate currency swings have an inconsequential effect on earnings, employing options transactions for hedging the exchange rate within a specified range is a profitable strategy.