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Dynamic hedging solutions

This is a Bidvest Bank promotional feature

Exchange control liberalisation has created new opportunities for South Africans wishing to transfer money overseas. Most are aware they can move up to R4m a year offshore, once tax clearance has been given, and up to R1m without tax clearance.

Less well known is that the Reserve Bank also permits those making transfers to use an instrument called ‘dynamic hedging’.

Essentially, this means a SARB-authorised currency provider such as Bidvest Bank can purchase their foreign exchange at the current rate for transfer up to six months later.

The facility has been little used to date, but warrants a second look by clients who know a significant sum has to be remitted overseas in the coming months.

For example, a parent may have to pay fees to a private school in the UK. Or perhaps a family property has been sold in South Africa and half the proceeds have to be remitted to a family member who has moved to Australia.

The amount is known; so is the timeframe. The only variable is the exchange rate.

The person making the transfer may be concerned that the rand seems to have entered a weakening phase or currency market volatility may cause concern.

In such circumstances, it may seem prudent to opt for dynamic hedging.

Alternatively, the person making the transfer may be confused about what direction the rand is taking and what the rate might be several months hence. The hedge might or might not be necessary.

It might then be prudent to hedge half the sum and take market risk on the rest.

The facility is there and the Bidvest Bank specialists are happy to explain exactly how it works.
   
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