Hedging smooths highs and lows of currency

Exporters and importers had to change the way they did business when the dollar floated.

Since flotation, the dollar has ranged between US38c and almost US73c and has, in some years, swung in excess of 20 per cent. With stability no longer assured a crash course in the business of currency hedging was required.

Basically that involves agreeing to buy or sell currency at a certain price some time in the future - or having an option to do so.

Exporters are happy when the currency is low (they receive more for their goods) and importers when it's high (they pay less).

Here's how some of the country's biggest companies deal with volatile currency.

* Fonterra: New Zealand's biggest company takes no chances on the short-term fluctuations of the dollar. The dairy exporter, which trades largely in US dollars, has all its currency needs fully hedged 15 months in advance. That only delays the impact of the high dollar but it gives Fonterra the time and price certainty to structure its business operations to cope.

Chief executive Andrew Ferrier has said that speculating was not appropriate for a large corporate. Companies that tried to be currency traders often became unstuck, he once told the Herald.

* Sky TV: Buys programmes in US dollars and is also exposed to the Australian dollar. It takes high levels of cover for the current year, decreasing levels the following year and the year after - with levels kept current by updating hedging levels each month.

Against the US currency, it is 92 per cent hedged for the six months to June 2005 at 0.5899, a rate which will fall to 0.5636 for 72 per cent of its exposure for the year to June 2006 and then rise to 0.6345 with 38 per cent coverage for the following year.

Chief financial officer Jason Hollingsworth said: "We follow the policy - we don't speculate".

* Fisher & Paykel Healthcare: The company is 95 per cent covered through to the end of the March 2005 year at 0.4299 and 70 per cent hedged for the full March 2006 year at 0.4337. In November, the company reported its foreign currency hedging policies had a $13.7 million positive impact on operating profit.