The past year saw large swings in currencies hampering corporate earnings. Currency volatility is still above the 10-year average and companies are looking for ways to guard their profits whilst also keeping hedging costs down. IBM and Meta, two of the largest companies in the world are amongst those affected by the currency swings having seen decreased revenues as a result.
Even though FX markets are currently less choppy than they were a few months ago, we can expect more volatility this year as central banks adjust monetary policies to fight inflation.
Volatility widens the bid-ask spread and makes hedging more expensive. At Vedanta we have seen more companies using options to protect earnings against losses caused by currency movements.
Abhishek Sachdev, CEO at Vedanta Hedging in the UK, said 30% more of his mid-market clients are using options than a year ago.
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