A hedge ratio is only as stable as its denominator. When a forecast receivable changes, an unchanged hedge can leave a business with more currency committed for delivery than it expects to receive.
Separate the market framework from the internal policy
The GFXC describes the FX Global Code as a good-practice framework for wholesale markets that supplements applicable regulation. It is not a company-specific rule for how much forecast revenue to hedge. The following example examines an internal cash-flow policy using invented amounts. GFXC — FX Global Code
An 80% hedge can become a 133% hedge
Suppose an exporter expects to receive €1 million in three months and commits to sell €800,000 forward on that date. Relative to the original forecast, the hedge ratio is 80%. The remaining €200,000 is exposed to the conversion rate when received.
Now suppose an order cancellation reduces the expected receipt to €600,000. The €800,000 forward remains outstanding. Dividing the hedge by the updated exposure gives approximately 133.3%. The exporter expects a €200,000 delivery shortfall and may need another source of euros to meet the contract.
Assume, purely for illustration, that the forward sale rate is $1.10 per euro and buying the missing euros at maturity costs $1.15 per euro. Acquiring €200,000 costs $230,000, while that portion of the forward produces $220,000. The shortfall-related difference is $10,000 before fees. A different market rate could produce a different result; the example establishes exposure, not a forecast.
Dates matter as much as amounts. If the customer pays the expected €800,000 a month late, the total forecast may still look accurate while the original forward delivery has no matching cash available on its date. Any extension or replacement needs its own terms and cost analysis.
Measuring the hedge only at inception hides both problems. A useful internal dashboard distinguishes contracted receipts, uncertain forecasts, outstanding hedges and the timing of each cash flow.
Review the denominator as well as the trade
Specify what qualifies as an eligible exposure and how forecast changes enter the review process. Track revisions with their dates and business reasons so a ratio change can be explained.
Before adjusting a hedge, identify delivery obligations, available currency balances and contractual options. There is no universal hedge percentage in this example. The operational lesson is to reconcile the hedge to the latest credible amount and date, instead of treating the original ratio as permanent.