Knowing what a forward contract is won't help you if you don't know how to use it inside an organisation.

Episode 11 moves from theory to practice. David Axtell walks through how corporate hedging programmes actually work — the policies, the ratios, the instruments, and the mistakes that cost real money when treasurers get it wrong.

He starts with the three types of FX exposure every international company faces: transaction exposure from committed cash flows, translation exposure from consolidating foreign subsidiaries, and economic exposure from competitive positioning. Most companies only manage one of them properly. David explains why transaction exposure gets the attention, translation exposure usually isn't worth hedging, and economic exposure can't be solved with forwards alone.

The heart of the episode is programme design. David uses the example of a US technology company with two and a half billion euros in annual European sales to demonstrate graduated hedge ratios — one hundred percent for committed orders, eighty percent next quarter, sixty percent for pipeline, forty percent for estimates. The result: seventy percent overall coverage weighted by certainty. Elegant. Practical. And aligned with how confident you actually are that exposures will materialise.

He covers rolling hedge programmes for companies with recurring monthly flows, explaining the mechanics of continuous forward coverage and why it delivers budget certainty at minimal cost. Then he tackles the most common mistake in corporate hedging: measuring performance by comparing hedge rates to spot outcomes. His line captures it: that's like cancelling your car insurance because you didn't have an accident.

The episode closes with instrument selection beyond vanilla forwards — window forwards for flexible timing, participating forwards for uncertain exposures, and zero-cost collars for range protection — matching each instrument to the exposure characteristics it's designed to serve.

Next Episode: Hedge Accounting — IFRS 9, ASC 815, and why getting the accounting wrong can undo everything your hedging programme was designed to achieve.

Based on: Chapter 9 of FX Cash Products by Luigi Rondanini and David Axtell, forthcoming from Rondanini Publishing.