(The May 21 story has been corrected to change the company description from “multi-dealer foreign exchange platform” to “foreign exchange management firm” in paragraph 2).
NEW YORK (Reuters) – Companies are increasingly looking to lock in exchange rates for longer as they seek to protect profits from the potential impact of currency fluctuations that could follow elections expected around the world this year.
The largest companies are the most risk-averse, implementing the longest hedging windows – 7.5 months on average – according to the research, based on a quarterly survey of 250 senior finance executives at UK and US firms conducted by multi-dealer FX platform MillTechFX last month.
Hedging windows refer to the time frame used by companies when purchasing foreign exchange hedges, and firms seeking to extend this period typically opt for longer-term options or forwards rather than shorter-term ones.
The survey found that nearly half of all respondents said they planned to increase their hedge length in anticipation of the upcoming election.
“In a year when more than half the world’s population in 80 countries will vote, it is not surprising that geopolitics is having a strong influence on corporate decisions to hedge currency risk,” Eric Huttman, chief executive of MillTechFX, said in a research note.
The study also found that geopolitics and central bank policies had the biggest impact on companies’ foreign exchange hedging in the first quarter.
The US dollar has risen 3.2% this year against a basket of major currencies, helped by the relative strength of the US economy.