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FIN-E3 - A currency hedge meets a partial customer payment

  • Situation: A customer owes 100 foreign units on day 30. A physical forward requires delivery of 100 foreign units for 90 home units that day, but the customer pays only 60.
  • Question: What does the hedge protect, and what must treasury now fund?
  • First useful result or blocker: At spot 0.95 home per foreign unit, buying the missing 40 costs 38 home units. If funded and settled, current net home cash is 52 and the unpaid customer claim of 40 foreign units remains.
  • Start with: FIN.14 for the combined receipt and hedge; FIN.13 if the underlying exposure or remaining claim is unclear.
  • Stop or return: Settle through FIN.15 only with the required funding and authority. Reassess the remaining claim and future protection after actual performance.

With the full customer receipt, the forward exchanges the 100 foreign units for 90 home units. FIN.14’s partial-receipt case keeps the customer’s outstanding claim separate from the forward’s unchanged delivery obligation. The receipt supplies 60, so treasury must obtain the other 40. Buying them at 0.95 requires 38 home units; purchase and forward settlement together give 90 − 38 = 52 of net home cash.

That net amount does not supply the money needed before the currency purchase. FIN.2 checks usable funds at that time. In FIN.15’s continuation, only 20 home units are usable, leaving a funding need of 18. Treasury needs a funded purchase or must return the execution problem through the provider’s supported recovery and the relevant decision authority. Entering a purchase instruction does not establish delivery.

After actual purchase and forward settlement, FIN.15 reconciles the amounts and dates. The unpaid customer claim of 40 remains unless a separate event changes it. FIN.17 carries the partial payment into the cash and exposure accounts; FIN.13 and FIN.14 use the remaining claim, its expected collection and existing protection to decide whether future protection needs changing.

FIN.15’s funded continuation makes the remaining steps explicit. With the stated zero reserve, no other flows, 20 opening cash and an attainable draw of 18 before purchase, the currency purchase leaves home cash zero. The forward then supplies 90; repayment of 18.50 leaves 71.50. The net increase of 51.50 is the original contribution 52 less finance cost 0.50, and the customer still owes 40.

Before entering a new hedge, FIN.14’s comparison of fixed and optional protection shows how another collection amount can change the preferred design. That comparison does not cancel the already contracted forward in this entry. A changed exposure returns to the actual rights and available modification terms.