Client: Automotive Parts Supplier based in Illinois
- Currency Exposure: 8.9M Mexican peso
- Product(s): Fixed-Date Forward
- Hedge Ratio: 100%
The Story
An automotive parts supplier based in Illinois placed an order at the beginning of the year for parts from their vendor in Mexico. The client negotiated the price in Mexican peso (MXN) and subsequently priced the parts in US dollar (USD) for resale. Through our proactive monitoring of the situation and TEMPUS’ own forecasts, the client understood that the MXN showed little/no signs of reversing its trend against the USD and weakening.
Our personal specialists helped the Chief Finance Officer tailor a strategy that eliminated the client’s currency exposure and secured a profit on the parts.
The Challenge
The full amount owed was due at a pre-specified date 2 months out and the MXN had consistently strengthened against the USD, eating away at the client’s expected profit margins. The client was awaiting credit from another vendor before having the funds available to pay the invoice in full.
The Strategy
In order to secure the company’s remaining profit margin a strategy was drawn up by their Monex specialist, which involved using:
8.9M MXN (100%) fixed-date forward closing at a pre-determined date 2 months out
With the guidance of their Monex specialist, the client decided to lock in 100% of the invoice amount in a fixed-date forward. This helped avoid any potential for further losses to the company’s profits that would arise from the MXN continuing its appreciation against the USD.
The Outcome
Despite losing some of their expected profit from the parts ordered, the client was able to save $— than if they waited for when the invoice was due.
