Managing Risk and Opportunity through Uncertainty

NET INVESTMENT HEDGING 25% of survey respondents reported hedging net investment in foreign operations. Protecting against currency devaluation and avoiding P&L volatility were cited as the primary objectives. 66% To protect against currency devaluation 47% Avoid P&L volatility using FX-denominated debt for capital contribution 32% Protect intercompany dividend value 24% Investment to be sold 22% Investors interested in investment value as translated to reporting currency 21% Favourable carry (spot to forward) 16% Protect value of regulatory capital 14% 8% Protect against negative debt covenants Other Objectives for Hedging Net Investment in Foreign Operations 68% Forecasted FX- denominated exposures 12% Contingent risks, including bid-to-award risks or M&A 12% Earnings translation 15% Other 25% Net investment in foreign operations 55% Net monetary FX-denominated assets and liabilities Types of Risks Hedged FX BUDGET RATES Impact of FX Budget Rate on Hedging Decisions 45% Nearly half (45%) of corporates surveyed reported that FX budget rates impact corporates risk management decision- making and hedging practices. In determining FX budget rates, multiple data points are utilized, with bank-provided rates being the most popular. Yes, significantly; budget FX rate causes delays or accelerates hedging decisions and impacts instruments used Yes, somewhat; budget FX rate is taken into account but is not a main driver on how exposures are managed No 33% Bank forecasts 26% Average forward rates 24% Spot at time 15% Internally negotiated FX rate 14% Point in time 12% Based on rate of current hedge positions 5% Don’t have budget rate 5% Other Approach to Determining FX Budget Rates 36% 9% 55% 18 19