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Scenario 2 (Hedging Ratio Based on Speculation)
A U.S. dollar company has exposure to a 100,000 euro receivable that it hopes to collect in 60 days.
The current EUR/USD rate is 1.4677/1.4678, but management feels very strongly that the U.S. dollar
will drop in value over the next couple of months.
In this example, the company could reduce its forex hedging on the known exposure to 75%, in the
hopes of profiting from a lower U.S. dollar on the remaining 25%. Alternatively, the company could
hedge out the entire 100,000 euro exposure with a spot trade, selling 100,000 units of EUR/USD, in
which case any changes in future EUR/USD currency rates would be effectively hedged
To act on their judgement around the USD drop in value, the company could buy 25,000 euros through
a EUR/USD spot trade as a separate transaction in their speculation account, thereby profiting from a
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