Oanda corporation Revision 5

Scenario 1 (Hedging Ratio Based on Uncertainty) 

A Japanese company expects to complete a 10 million euro purchase contract. However, the purchasing 

department does not have sufficient confidence in this purchase amount, so it recommends a hedging 

ratio of 80%, and further recommends that any hedging above 5 million euros be in lots. The company 

hedges one lot of 5 million euros (for the first 5 million euros) and three additional lots of 1 million 

euros each. It does not hedge the remaining 2 million euros (which is outside of the hedging ratio).  

If, for some reason, the purchase contract ends up with just over 7 million euros, the majority of the 

hedging relationships would remain intact and only one lot of 1 million euros would need to be closed 

out and taken to the income statement. Conversely, if the contract is later forecasted to increase beyond 

the original 10 million euros, the company could make additional hedges at that later date.