FX Strategy Simulation - Option Contracts

FX Strategy Simulation - Option Contracts: To illustrate the concept of option contracts, this FX strategy simulation uses the Foreign Exchange Derivative Speculator to model the economic and accounting aspects of a put and a call option. These examples demonstrate the economics and accounting of option contracts, and show how variables such as the option strike rate and implied volatility impact the premium or cost of the option at inception.

Additionally, the asymmetrical payoff profile of an option is highlighted using the economic chart, and the accounting is clarified using journal entries and t-accounts. From a cash flow perspective, emphasis is placed on the fact that options can finish "in the money" where a cash payment is received at maturity, or "out of the money" with a zero fair value where no further payment is required to settle the contract.

Overall, the three key distinguishing characteristics of vanilla option contracts, compared to forwards and option combinations, are (1) that a premium is paid upfront, (2) there is an asymmetrical payoff profile relative to the spot foreign exchange rate, and (3) there is no obligation to make a payment at maturity. For additional information and examples, explore our on-demand self-study CPE course titled FX Spot & Derivatives.

To learn more, start your FX risk management training today, which provides 24/7 365 access to our complete suite of foreign exchange (FX) continuing professional education (CPE), examples & events at FXCPE.com.

Windy City Summit Remote Learning Session

With the cancellation of the 2020 Windy City Summit, our originally planned live learning session will be held remotely. Registration for this program is open to the public. If you are a Windy City Summit sponsor or attendee and would like to learn more about remote learning opportunities, please contact us at support@fxinitiative.com.

As health and safety remains a top priority, we fully support the timely decision of the conference organizers. Following increased concerns about COVID-19 over the past few weeks, it was determined that canceling the event was the safest option for all involved. For additional information, visit the Windy City Summit website.

As many are shifting work routines and showing resilience, FX Initiative remains committed to our mission serving as a global foreign exchange (FX) continuing professional education (CPE) provider of on-demand training, online tools, and webinar topics on currency risk management for finance, accounting, and treasury professionals.

We are a Chicago based organization, and similar to the Chicago Fire of 1871, we are committed to offering a rewarding “silver lining” experience by salvaging the summit’s valuable learning opportunities. Please join our webinar on Wednesday, May 20th 2020 on Mastering Currency Risk Management by registering here.

Remote FX Risk Management Resources

Whether you work remotely or are highly mobile, FX Initiative provides a suite of foreign exchange (FX) risk management training and tools to help treasury professionals and sales teams achieve their objectives inside and outside of the office. If you need to research a foreign exchange educational topic related to your global business, or want to simulate a foreign exchange risk management strategy using our interactive examples, we offer a wide array of quality informational topics and tools that can help you manage FX risk.

FX Initiative is designed to make complex foreign currency matters simple and manageable, and is accessible 24 hours a day 7 days a week to meet your global business needs whenever and wherever a FX opportunity arises so you can make the right decisions to meet your FX objectives. Get acquainted with our educational topics and interactive examples, then review and test your knowledge with quizzes and CPE exams. Throughout your learning experience, visit our terms glossary and FAQ for help along the way.

Benefit from our currency risk management educational videos, review quizzes, CPE Exams, CPE Credits, and Certificates of Completion:

1. Foreign Exchange (FX) Market Overview
2. FX Risk Exposures
3. FX Risk Management
4. FX Spot & Derivatives
5. Hedging FX Transactions
6. Hedging Foreign Subsidiaries

Apply theory to practice with our suite of interactive examples to help reinforce learning concepts and model risk management strategies:

• Currency Code Locator
• FX Risk Policy Drafter
• FX Derivative Speculator
• FX Transaction Simulator
• FX Subsidiary Consolidator

Our training is available 24/7 365 to help you with FX risk policies, FX accounting, FX hedge strategies, and everything FX risk management related. Controllers and consultants alike can enhance their FX policies and procedures and simulate common hedging strategies using our collection of tools to clarify complex issues in real time and mitigate currency risk when transacting across borders.

FX Initiative is focused on foreign exchange, and our mission is to help your international business succeed abroad by teaching corporate currency risk management best practices. To learn more, start your FX risk management training today, which provides 24/7 365 access to our complete suite of foreign exchange (FX) continuing professional education (CPE), examples & events at FXCPE.com.

4 Step FX Risk Management Policy

A Foreign Exchange (FX) Risk Management Policy is a formal written document that serves as a framework for mitigating and optimizing a company’s FX risk profile. In practice, FX risk management policies can vary widely across organizations depending on their size and structure. Getting started or improving already existing policies can be a challenge without knowing best practices and seeing examples. Therefore, this FX Risk Policy Drafter was designed to help you create a comprehensive Foreign Exchange Risk Management Policy in 4 simple steps.

1. Enter the company name, home country, functional currency, effective date, and review period.
2. Establish internal controls by appointing at least three personnel to the segregated duties of trading, accounting and record keeping.
3. Define materiality thresholds by specifying minimum transaction amounts and hedge coverage levels.
4. Specify the derivative hedging instruments authorized for use and minimum acceptable counterparty credit ratings.

Upon completing these 4 steps, 9 sections of the Foreign Exchange Risk Management Policy are drafted and include (1) Function, (2) Definitions, (3) Policy Guidelines, (4) Roles and Responsibilities, (5) Reporting (6) Internal Controls (7) Counterparty Guidelines (8) Policy Review and (9) Policy Approval. Upon reviewing these 9 sections, you will clearly see how the inputs in Steps 1 through 4 are used, and how the program as a whole serves to mitigate currency risk exposures inherent in a company’s business model by specifying how the company’s currency risk management goals will be carried out.

You can use this tool to improve or enhance your already existing policy or to lay out a new formal Foreign Exchange Risk Management Policy with clear parameters and guidelines for managing currency risk across the enterprise. Not only does this tool offer a well written policy you can use to tailor your own policy after, it also provides the level of detail to make implementation feasible. Take advantage of this Foreign Exchange Risk Policy Drafter as your own writing tool to help create an optimal foreign exchange risk management policy for your organization.

To learn more about about corporate currency risk management best practices, start your FX risk management training today, which provides 24/7 365 access to our complete suite of foreign exchange (FX) continuing professional education (CPE), examples & events at FXCPE.com.

March 2020 Newsletter

Explore our March newsletter and discover the latest blog posts and insights from FX Initiative on currency risk management. We help finance, accounting, treasury, and sales professionals stay up to date with new training content, CPE webinars, and helpful tips & resources.

Scale the learning curve quickly and easily with our foreign exchange risk management training, which provides 24/7 365 access to our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com. Start Training >

View Newsletter

FX Risk Management Maturity Model

Foreign exchange (FX) risk management involves identifying, analyzing, and prioritizing various foreign currency exposures, and developing and implementing a coordinated and systematic plan that utilizes company resources efficiently and effectively to mitigate FX risk.

The degree to which companies implement adequate foreign exchange risk management practices can vary substantially, from not managing the risk at all to engaging in robust hedging activities, and as a result, the impact on the bottom line can vary widely across organizations.

This FX Risk Management Maturity Model outlines the 5 stages of a comprehensive currency risk management program. The process involves performing a FX risk assessment, developing a FX risk management policy, and implementing progressive FX hedging strategies.

5 Stage FX Risk Management Maturity Model

1. FX Risk Assessment: Exposure Identification & Measurement
2. FX Risk Management Policy: Hedging Guidelines & Procedures
3. Balance Sheet Hedging: Booked Receivables & Payables
4. Cash Flow Hedging: Forecasted Revenues & Expenses
5. Net Investment Hedging: Subsidiary Earnings & Equity

The design and implementation of a FX risk management program must take into account the specific goals and objectives of the firm, the organizational structure and operations, the line of products and/or services, and any other variable that may be material and of relevance.

For firms that are new to foreign exchange risk management, emphasis should be placed on progress over perfection. Initial risk management plans are never perfect, and should be viewed as a process that is responsive to change and capable of continuous enhancement.

To learn more about FX risk assessments, policies, and hedging strategies, start your FX risk management training today, which provides 24/7 365 access to our complete suite of foreign exchange (FX) continuing professional education (CPE), examples & events at FXCPE.com.

FX Strategy Simulation: Forward Contract

FX Strategy Simulation - Forward Contract: To put the concept of a forward contract into practice, this foreign exchange (FX) strategy simulation uses the FX Derivative Speculator to demonstrate the economics and accounting of a foreign currency forward contract using the default accounting treatment to help reinforce the following two points:

1. The functional currency value of the forward at any point in time is equivalent to the difference between the forward rate on the contract and the then prevailing forward rate in the market.
2. The interest rate differential between the two currencies in the pair determines the forward point premium or discount applied to the spot rate to compute the "all in" forward rate.

To learn more, start your FX risk management training today, which provides 24/7 365 access to our complete suite of foreign exchange (FX) continuing professional education (CPE), examples & events at FXCPE.com.

February 2020 Newsletter

Explore our February newsletter and discover the latest blog posts and insights from FX Initiative on currency risk management. We help finance, accounting, treasury, and sales professionals stay up to date with new training content, CPE webinars, and helpful tips & resources.

Scale the learning curve quickly and easily with our foreign exchange risk management training, which provides 24/7 365 access to our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com. Start Training >

View Newsletter

White Label Web Applications

FX Initiative's white label web applications are designed to help treasury professionals and FX sales teams with a wide variety of foreign exchange (FX) risk management challenges and opportunities. Whether you are creating a FX risk policy or analyzing economic and accounting scenarios, our risk models and strategy simulations share best practices in easily understandable formats.

Examples include:

Mastering Currency Risk Management Webinar

Program Overview

Join us for an educational webinar on Mastering Currency Risk Management as we address the fundamental concepts of corporate foreign exchange (FX) risk management. This informational session will share how to assess a company’s FX risk profile using a step-by-step analysis framework, the four approaches for managing currency risk, and the impact FX risk has on the financial statements. Participants will learn key terminology and best practices for incorporating company personnel, operations, resources, and policy into a world class FX risk management program.

Learning Objectives

1. Discover how leading multinational corporations manage foreign exchange (FX) risk.
2. Explore FX risks on the Income Statement, Balance Sheet, and in annual reports (10-K).
3. Recognize FX terminology such as transaction risk, translation risk, and economic risk.
4. Identify the essential elements of a world class corporate FX risk management program.

Who Should Attend?

New and seasoned finance, accounting, treasury, and related professionals (CPA, CIA, CRMA, CFE, etc.) interested in international business.