Currency risk

Currency Hedging Loss Estimator

Paying a supplier or expecting money in another currency? Enter the amount, today’s rate and when the payment happens. See what a rate move would cost or earn you, how much a forward contract would lock in, and a realistic worst case based on volatility.

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Rate moveRate at paymentUnhedgedGain / lossWith your hedgeGain / loss

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Why estimate currency risk

Protect your margin

A few percent of FX movement can wipe out profit.

Decide on hedging

Compare the certainty of a forward with the risk of waiting.

Budget accurately

Plan in your own currency with a realistic range.

How to estimate FX risk

  1. Describe the paymentPaying or receiving, amount, currencies and months until payment.
  2. Enter ratesSpot rate and a forward quote, or interest rates to estimate one.
  3. Choose the hedgeSet the hedge ratio and volatility, then read the scenarios.

Hedging in plain terms

Hedging does not aim to make money on currencies; it aims to make your costs predictable. With a 100% hedge the result is fixed at the forward rate: you give up gains if the rate moves your way in exchange for protection if it does not.

The forward rate differs from today’s spot rate because of interest rate differences between the two currencies, not because anyone predicts the future rate.

Unhedged

Full exposure to rate moves.

Partially hedged

A share fixed, the rest floating.

Fully hedged

Cost locked at the forward rate.

Currency hedging FAQ

How do exchange rates create a loss?

If you must pay EUR 100,000 in 6 months and the euro strengthens 5%, the payment costs 5% more in your currency. If you are receiving euros, the same move is a gain.

What is a forward contract?

An agreement to exchange currencies at a fixed rate on a future date. It removes uncertainty: you know the exact cost today, whatever happens to the spot rate.

How is the forward rate calculated?

By covered interest parity: forward = spot x (1 + home rate x t) / (1 + foreign rate x t), where t is the time in years. Your bank’s quote will include a margin.

What is the hedge ratio?

The share of the amount you hedge. Many businesses hedge 50-100% of known payments and leave the rest open.

How is the worst case estimated?

From annual volatility scaled to the time until payment: move = volatility x sqrt(months / 12) x 1.645, roughly a 1-in-20 adverse move under a normal distribution. Real markets can move more.

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