Very often we find Companies engaging with the Banker to hedge their currencies exposure via forex contract. For example, to hedge against their foreign currency sales, the Company would book in forex sales contract; to hedge against their foreign currency purchases, the Company would book in forex purchase contracts.
There are cases where the Company, upon learning that the foreign proceeds/payment will not be forthcoming, have resorted to cancel the forex contract.
The above practice should only be used as a last resort. The reason being that when a forex contract is cancelled, it gives the impression to the Banker, and ultimately the Central Bank, that there is no underlying transaction for the forex contrat to be hedged, and that is why probably you need to cancel the forex contract in the end. This would therefore mean that you are speculating on the forex currencies instead of hedging, and this is certainly not the type of impression that you want to give to your Banker.
As such, cancellation of forex contracts should be viewed seriously. Before any forex contract is cancelled, one should consider other options such as:
a) Extension of forex contract; or
b) Following up with the relevant parties to ensure that the proceeds/payment is forthcoming
How can Beyond Solution Malaysia assist you?
* Speak to us if you want to know more about forex hedging.
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