Hi, Im a Swedish producer and I have paybales in 6 months in USD and receivables in JPY in 6 months as well. Instead of doing two 6-months contracts USD/SEK and SEK/JPY, I can do just one in USD/JPY. Ill skip the bid-ask spread in that way and both foreign exposures are hedged, correct? I even dont have to value the correlation between the two currency pairs as its not a cross hedge, neither a three pair hedge, it`s just having two opposite exposures in two foreign currencies.
What would you say?
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Depends on your view
Do you think the USD and JPY will depreciate in three months time (the second 3-month leg of your hedge period)?
I think I get your point.
The best would be if I expect the USD/JPY will appreciate in 6 months, so I buy USD/JPY forward contract and my hedge will be successful.
But in case of cash flows (receivables and payables) you may want just to lock your price. And then, instead of buying USD/SEK and buying SEK/JPY, we can just do USD/JPY. We save the bid-ask spread at least.
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