Syllabus E. Treasury And Advanced Risk Management Techniques E2. The use of financial derivatives to hedge against forex risk

E2c. Matching 13 / 13

Syllabus E2c)

c) Advise on the use of bilateral and multilateral netting and matching as tools for minimising FOREX transactions costs and the management of market barriers to the free movement of capital and other remittances.


This is the use of receipts in a particular currency to match payment in that same currency.

Wherever possible, a company that expects to make payments and have receipts in the same foreign currency should plan to of set it payments against its receipts in that currency.

Since the company is offsetting foreign payment and receipt in the same currency, it does not matter whether that currency strengthens or weakens against the company’s domestic currency because there will be no purchase or sale of the currency.

The process of matching is made simply by having a foreign currency account, whereby receipts and payments in the currency are credited and debited to the account respectively.

Probably, the only exchange risk will be limited to conversion of the net account balance into the domestic currency.

This account can be opened in the domestic country or as a deposit account in oversees country.