Exporters need to be wary of banks dropping premiums on foreign currency hedges in exchange for leveraged exposure to the risk of markets turning against them, says corporate treasury adviser Asia-Pacific Risk Management.
In its latest monthly bulletin, APRM asks whether banks are "up to their old forex tricks" as conditions in foreign exchange markets start mirroring the late 1990s, when exporters expecting the kiwi to keep rising were caught by a collapse in its value after the Asian financial crisis.
Such arrangements had got some NZ companies into "a power of strife" in 1998, because they had struck "collar" arrangements in which they were able to avoid premiums for buying protection from a rising kiwi dollar as long as they took between two and four times as much risk if it fell sharply.
The firm said such offers were often a bank response to the "restrictive needs" of clients who wanted to avoid premiums on forward cover.
