Client: Automotive Parts Supplier based in Illinois
- Currency Exposure: 8.9M Mexican pesoÌýÌý
- Product(s):ÌýFixed-Date ForwardÌý
- Hedge Ratio:Ìý100%
The Story
An automotive parts supplier basedÌýin Illinois placed an order at the beginning of the year for parts from their vendor in Mexico.ÌýThe client negotiated the price in Mexican peso (MXN) and subsequently priced the parts in US dollar (USD) for resale.ÌýThrough ourÌýproactiveÌýmonitoring of the situation andÌýTEMPUS’ own forecasts, theÌýclient understoodÌýthat the MXNÌýshowedÌýlittle/noÌýsigns of reversing its trend against the USDÌýand weakening.
OurÌýpersonalÌýspecialistsÌýhelped theÌýChief Finance OfficerÌýtailor a strategy thatÌýeliminatedÌýthe client’s currency exposure and securedÌýa profit on the parts.
The Challenge
The full amount owed was due at a pre-specified dateÌý2 monthsÌýoutÌýandÌýthe MXN hadÌýconsistently strengthened against the USD, eating away at the client’s expected profit margins.ÌýThe clientÌýwasÌýawaiting credit from another vendor beforeÌýhaving theÌýfundsÌýavailableÌýto payÌýthe invoiceÌýin full.
The Strategy
In order to secure the company’s remaining profit margin aÌýstrategy was drawn up by their °Ä²Ê¿ª½±ÍøÌýspecialist,ÌýwhichÌýinvolved using:
8.9MÌýMXN (100%) fixed-date forward closing at a pre-determined date 2 months out
With the guidance of their °Ä²Ê¿ª½±ÍøÌýspecialist, the client decided to lock in 100% of the invoice amount in a fixed-date forward. This helped avoid any potential for further losses to the company’s profits that would arise from the MXN continuing its appreciation against the USD.
The Outcome
Despite losing some of their expected profit from the parts ordered, the client was able to save $— than if they waited for when the invoice was due.
