Budget Rate Protection
Common for companies with annual budgets, CFO-driven
Your Situation: You set annual budgets with assumed FX rates (e.g., 1.35 USD/CAD). Actual rates deviate, blowing up your P&L.
The Challenge: Board approved budgets based on rate assumptions. Variance explanations are painful. Bonuses tied to hitting budget.
Our Strategy: Dynamic hedging that triggers when spot moves X% from budget rate. Protect the budget, not the market.
Example Rules:
- Budget rate: 1.35. Trigger hedging when spot hits 1.38 (2.2% deviation)
- Increase hedge ratio as deviation grows: 50% at 2%, 70% at 4%, 90% at 6%
- Cap at 90% coverage (leave some upside if rates improve)
- Review quarterly and adjust budget rate if persistent deviation