Nedbank Lesotho Treasury is a team of specialists who provide practical support and advice to make managing currency risk simple and cost-effective.
Businesses that trade internationally are likely to be exposed to foreign exchange risk arising from volatility in the currency markets. If not managed effectively, the impact that exchange rate fluctuations can have on business profitability can be significant.
Our team of foreign exchange specialists will work with you to develop an appropriate foreign exchange risk management strategy that effectively meets the requirements of your business, using instruments such as spot cover, forward exchange contracts (FECs) and derivative instruments.
We provide the following key services:
FECs are contractual agreements between the bank and its clients to exchange a specified amount of one foreign currency for another at a predetermined exchange rate on a specified future date. There are various types of FECs that can be used depending on your requirements:
Swaps are the simultaneous purchase and sale of identical amounts of one foreign currency for another, but on two different value dates, either spot against a forward date or one forward date against another forward date.
Long-dated forwards are FECs with a maturity date longer of than 12 months forward, subject to prior approval of the Central Bank of Lesotho (CBL).
Currency derivatives can also be used to hedge exposure to exchange rate fluctuations, but are fundamentally different from FECs. Whereas the parties to a FEC are 'lockedin' to a future transaction in a forward contract, the buyer of an option contract has the right, but not the obligation, to buy or sell a fixed amount of currency at a fixed exchange rate on a predetermined date in the future. The buyer can therefore choose the better exchange rate – either the prevailing rate in the market at the time, or the price specified in the option contract. There are two main types of option contracts, namely call options and put options, and these can be used in various combinations to provide structured solutions to meet your hedging requirements. While currency derivatives provide greater flexibility as a hedging instrument, they also have a cost in the form of a premium that is payable at the time of purchasing the option contract.
With a call option the buyer has the right, but not the obligation, to buy the underlying currency at a fixed exchange rate on a predetermined future date.
With a put option the buyer has the right, but not the obligation, to sell the underlying currency at a fixed exchange rate on a predetermined future date.
Financial markets information and advice
We provide pertinent data and astute perspectives on the foreign exchange markets to our clients.