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millions of Canadian dollars, euros, and so on,
because they can offer internet-based systems
that are more convenient and that can usually
provide you with better rates.
some of the smaller foreign currency shops
may offer competitive rates, but you need to
test the rates that you are getting periodically,
whether using a large institution or a small firm,
to make sure that you are receiving market rates.
The sixth step is to start reading the news
every day on the currencies that you plan to
hedge so you can gain a better understanding of
what the trading range is and why the currency
is moving up and down.
in the case of the Canadian dollar, it may be
primarily interest rate differentials, economic
data, the price of oil, etc.
in the case of the euro it is much more
complicated and may depend on interest rate
differentials, economic data in the u.s. and
individual countries in europe, the price of
oil, decisions by countries’ central banks to
amend their basket of “reserve currencies” that
they hold, world events, and the perceived risk
related to currencies other than the usd, which
is a safe harbor for many people, etc.
at atalanta Corporation, we actively hedge
the euro and the Cad. our euro purchases
are approximately 25 percent of our total cost
of products sold. of the 25 percent, we have
hedged on average 30 or 40 percent. our five-
year track record as measured at the end of each
year has been an important level of savings.
We have a five-year syndicated loan for approxi-
mately $200million and at various times we have
used all of the lending banks for some portion of
our currency hedging.The banks areWells fargo
(agent), tdbank, israel discount bank, Citibank,
Chase, and banco santander.The benefits of using
banks in the syndication network are that they
already have a collateral base, and hopefully can
be convinced to offer more favorable rates than
financial institutions not already doing business
with the company. each bank in the syndication
network that is interested in the business provides
a separate line of credit for hedging activity, based
on existing collateral and the perceived risk of
entering into foreign exchange transactions.
The euro was launched at parity with the
u.s. dollar in may 1998. The lowest level was
0.82 usd in october 2000. The strongest level
was 1.59 in april 2008 and the mathematical
mean has been around 1.20. The volatility of
the currency has meant that there were very
important opportunities for atalanta to save
money on purchases of cheese, olives, olive
oil, and other products from europe.
The strongest level of the Cad the last five
years was 0.92 to the usd in 2007. The weak-
est level was 1.30 to the usd in 2008 and the
mathematical mean has been 1.06. The volatility
of the currency has meant that there were very
important opportunities for atalanta to save
money on purchases of meat fromCanada.
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CUrrENCy HEdGiNG sTrATEGiEs
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