Deal Contingent Hedging | Deaglo | Invest Overseas Effortlessly
tim-evans-Uf-c4u1usFQ-unsplash-min.jpg

Deal Contingent Hedging

Deal contingent hedging is utilized during the closing periods of acquisitions and investments in order to reduce the effect of FX risk whilst final due diligence is completed. In some cases, final due diligence can be completed in a few weeks.

 

In much larger and more complicated transactions dd can go on for many months, if not years. No matter the time frame, in a cross-border transaction, spot rates quite often change substantially. This can imperil the deal, as the mutual valuation between the buyer and seller in their own home currencies will diverge.

The New Way

Traditional use of contingent forwards and options are inconvenient and expensive. Using machine learning, we have been able to identify baskets of currencies with higher and more robust correlations to the target currency.

 

 If deals are either completed or fall through, a basket of currencies can hold their value against the buyer's currency and seller's currency. So no matter the outcome, the risk to deal valuation remains low.

Reduce FX Volatility

Basis risk is spread over multiple currencies rather than being concentrated on one.

 

Using a basket of up to four currencies to hold value during the due diligence period of a cross border transaction, represents an excellent alternative to expensive vanilla option premiums.

No Derivatives Needed

Using derivatives often requires setting up and negotiating ISDAs or new credit relationships with a counter-party. Utilizing multiple spot transactions to create a basket requires neither.

 

Combining this with extremely low execution costs, has made it a sort after solution for contingent hedging.

Want To Learn More About Deal Contingent Risk?

Our Cross-border Content is designed to answer questions you may have about the world of cross-border transactions. If you have further questions that aren't covered by our articles, feel free to contact our team.

Learn More About Our Solutions

If you are interested in finding out more about our services or speaking to one of our team, please reach out to us on:

info@deaglo.com

Deaglo white logo.png
  • LinkedIn - White Circle

Deaglo Partners LLC’s Payment and Foreign Currency Exchange Services to customers based in the United States (USA) are provided by Associated Foreign Exchange, Inc "AFEX". Deaglo Partners LLC’s is partnered with AFEX Associated Foreign Exchange as its Programme Manager. Associated Foreign Exchange, Inc. (“AFEX”) is licensed and regulated as a Money Transmitter by the following Regulatory State Agencies. AFEX is also registered as a Money Services Business (MSB) with the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Department of the Treasury (Document Control Number: 20113470000126)

Deaglo Partners LLC’s Payment and Foreign Currency Exchange Services to customers based in the European Economic Area (EEA) are provided by Ebury Partners UK Limited. Deaglo Partners LLC’s is partnered with Ebury Partners UK Limited as their Programme Manager. Ebury Partners UK Limited is authorized and regulated by the Financial Conduct Authority as an Electronic Money Institution. (Reference Number 900797). Ebury Partners UK Limited is authorized to provide its permitted services in the European Economic Area (EEA).