Practical steps to manage foreign exchange risk - part 2

In this lesson

1. 0:00 Introduction to leading and lagging strategies
2. 0:11 Leading: paying early to lock in strong currency
3. 0:26 Risks of leading when currency strengthens further
4. 1:07 Lagging: paying late when currency is weak
5. 1:40 Why leading and lagging is speculation not hedging
6. 2:22 Wandle Co case study: managing multiple exposures
7. 3:16 Using inflation to forecast exchange rate movements
8. 4:06 Netting foreign currency payments and receipts
9. 5:00 Deciding when to pay: leading versus waiting
10. 6:05 Applying bid and offer rates to payment calculations
11. 7:27 Summary: invoicing, matching and payment strategies

About this lesson

This builds on part 1 and covers leading and lagging—paying early or late to capitalise on favourable exchange rates—plus the matching concept for offsetting foreign currency receipts and payments. You'll see how to apply these methods in real exam scenarios, including worked calculations with bid and offer rates. The video walks through the key distinction between hedging and speculation. Leading means paying foreign currency debts early when your home currency is strong; lagging means delaying payment when you expect your home currency to strengthen. Both strategies involve deliberate risk exposure and aren't true hedging—they're bets on future exchange rate movements. You'll also explore the matching concept: using incoming foreign currency to settle outgoing payments in the same currency, which reduces transaction risk in the short term and economic risk over the longer term. A practical worked example using Wandle Co demonstrates how to handle a net foreign currency position, calculate cash flows using bid and offer rates, and decide whether to pay immediately or delay based on inflation forecasts and currency strength. The lesson emphasises that mastery requires practice with these calculations, particularly when determining which exchange rate to apply and in which direction to convert currencies.

Duration: 9m