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Derivatives

U.S. Drinks Corp. Tweaks FX Hedging Strategy

Kentucky-based Brown-Forman, a beverage company that's portfolio includes Jack Daniel's and Southern Comfort, has altered its hedging of foreign exchange revenues in order to take advantage of the declining dollar.

Kentucky-based Brown-Forman, a beverage company that's portfolio includes Jack Daniel's and Southern Comfort, has altered its hedging of foreign exchange revenues in order to take advantage of the declining dollar. Roger Shannon, assistant treasurer in Louisville, Ky. said the corporate recently purchased over-the-counter puts on the euro, pound and Aussie dollar to hedge its international sales revenues for the upcoming fiscal year, all of which are converted to the U.S. currency. Last year the firm relied solely on entering zero cost collars, however, using collars means the company limits its upside if the dollar weakens. In a zero cost collar corporates typically select a strike on a call it purchases, which caps the exchange rate and sells a corresponding floor so that the proceeds from the sale of the floor will exactly offset the price of the cap.

Shannon declined to specify the notional amount of foreign exchange sales Brown-Forman has hedged for the coming year, or detail the options' strikes. Around 60% of the hedges comprise puts, while 40% are collars. The drinks manufacturer shops around between four counterparties for the best execution, said Shannon, declining to name the firms.

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