About This Template
For payments companies, FX risk is not a treasury abstraction — it is a daily operational reality. Any firm that settles transactions in multiple currencies, holds float in foreign currency accounts, or earns revenue in currencies other than its functional currency is exposed to FX movements that can materially impact profitability. A payments company processing EUR, USD, and SGD transactions through a GBP-functional-currency entity can see its gross margin shift by several percentage points in a single month purely from exchange rate movements, entirely independently of volume or pricing.
This template provides a structured framework for tracking currency exposures, logging hedging instruments, and calculating monthly P&L impact — the three components of a complete FX risk management process. It is designed for CFOs and treasury managers at growth-stage payments companies who are moving from ad hoc FX management (converting currencies as they accumulate) to a more structured hedging programme. It is also directly relevant for any firm approaching a Series B or later fundraising where institutional investors will expect evidence of a documented FX policy and hedging framework.
The template covers three exposure types: transactional (known future cash flows in foreign currency), translational (foreign currency assets and liabilities on the balance sheet), and economic (longer-term business sensitivity to exchange rate movements). Each sheet maps to a distinct part of the risk management workflow — from identifying and sizing exposures through to logging instruments and measuring their P&L effect.
What's Included
- Instructions sheet — FX risk overview covering the three exposure types (transactional, translational, economic), explanation of common hedging instruments (forwards, options, NDFs), and a guide to reading the template's four sheets
- FX Exposure Summary sheet — Currency positions table with pre-populated rows for EUR, USD, SGD, AED, PLN, and Other, showing gross receivables and payables in foreign currency, net position, GBP equivalent at spot rate, policy limit, variance vs limit, and RAG status. Summary rows show total GBP exposure, total hedged amount, and net unhedged exposure
- Hedging Log sheet — 15 rows for logging active hedging instruments, with columns for: Hedge ID, Trade Date, Maturity Date, Type (Forward/Option/NDF), Currency Pair, FCY Amount, Strike Rate, GBP Equivalent at Strike, Counterparty (bank), Status (Open/Closed/Expired), Mark-to-Market (£), and Hedge Effectiveness (%)
- P&L Impact sheet — Monthly FX gain/loss tracking with columns for Currency, Average Rate This Month, Average Rate Prior Month, Net Position in Average GBP, and Unrealised Gain/Loss. Annual summary rows aggregate total FX P&L, total hedging cost, and net impact
How to Use This Template
- Define your functional currency and policy limits. In the Instructions sheet, confirm your company's functional currency (typically GBP for UK-incorporated payments companies) and enter your board-approved FX policy limits per currency. If you do not yet have an FCA-approved or board-approved FX policy, use this template as a starting point for drafting one — the policy limit column in the FX Exposure Summary creates the framework for a formal limit structure.
- Update the FX Exposure Summary at least weekly. For each currency row, enter gross receivables (the total outstanding in that currency that you expect to receive, at current balance) and gross payables (amounts you owe in that currency). The net position calculates automatically. Enter the current spot rate in the Spot Rate column — this should be the mid-market rate from your bank's published rates or a market data provider, not the rate you actually transact at. The GBP equivalent will calculate from the net position and spot rate.
- Log each hedging instrument in the Hedging Log as trades are executed. When you enter a forward contract, option, or NDF with your bank, log it immediately with all relevant details: the trade date, maturity date, instrument type, currency pair, notional amount in foreign currency, and the agreed strike rate. Record the counterparty bank name and set the status to Open. As instruments mature or are closed out, update the status accordingly.
- Update mark-to-market values monthly. The Mark-to-Market column in the Hedging Log should be updated each month with the current fair value of each open instrument. Your bank will typically provide this on request, or it can be calculated from current spot and forward rates. A positive MTM means the instrument has moved in your favour; negative means you are holding an unrealised loss on the hedge.
- Calculate hedge effectiveness for each instrument. Hedge effectiveness is the ratio of the change in fair value of the hedging instrument to the change in fair value of the hedged item. Under IFRS 9, a hedge must be highly effective (80–125% range) to qualify for hedge accounting. If you are not applying hedge accounting, effectiveness tracking is still useful for reporting hedge quality to the board.
- Complete the P&L Impact sheet at month end. For each currency, enter the average rate for the month and the average rate for the prior month. The template calculates the unrealised gain or loss on your net position based on the rate movement. The annual summary aggregates the total FX P&L impact across the year, alongside total hedging costs (premiums paid for options, bid-offer spreads on forwards), to give a net FX impact figure.
- Report to the board quarterly. Use the FX Exposure Summary and P&L Impact sheets as the basis for a quarterly FX risk report to the board or risk committee. The report should cover: total unhedged exposure vs policy limits, hedging programme status (open instruments, coverage ratios), P&L impact in the quarter, and any changes to the hedging strategy.
Frequently Asked Questions
When should a fintech start hedging FX?
The decision to begin a formal hedging programme depends on three factors: the size of unhedged FX exposure, the volatility of the currency pairs in question, and the company's ability to absorb FX-driven earnings volatility. As a practical guideline, once aggregate net unhedged FX exposure in any single currency exceeds £250,000–£500,000, a formal hedging programme becomes worth the overhead. Below that level, natural hedging (matching receivables and payables in the same currency) and opportunistic conversion may be sufficient. The more important trigger is often investor or board expectation — Series B and later investors will typically require evidence of a documented FX policy regardless of the size of current exposure, because they are underwriting the growth trajectory which will increase exposure.
What is the difference between a forward contract and an option?
A forward contract is an obligation to buy or sell a fixed amount of foreign currency at a predetermined rate on a future date. It eliminates the risk of adverse rate movements but also eliminates the benefit of favourable movements — you are locked in at the agreed rate regardless of where the market goes. A currency option gives you the right (but not the obligation) to transact at the strike rate. If the market moves in your favour, you let the option expire and transact at the better spot rate. The cost of this flexibility is the option premium, which is paid upfront and is non-refundable. For payments companies in their early stages of hedging, forward contracts are simpler, cheaper, and generally more appropriate than options. Options become more relevant as the hedging programme matures and the company has a clearer view of its risk tolerance and budget for hedging costs.
How do I account for FX hedges under IFRS 9?
Under IFRS 9, FX hedges can be designated as cash flow hedges, fair value hedges, or hedges of a net investment in a foreign operation. For a payments company hedging transactional FX exposure (known future receipts or payments in foreign currency), a cash flow hedge designation is typically appropriate. To qualify, the hedging relationship must meet three criteria: an economic relationship between the hedging instrument and the hedged item, the credit risk of the counterparty must not dominate the value changes, and the hedge ratio must be the same as the ratio the company actually uses. If hedge accounting is applied, the effective portion of gains and losses on the hedging instrument is deferred in other comprehensive income (OCI) until the hedged item affects profit or loss. If hedge accounting is not applied — which is common for smaller companies where the administrative burden is not justified — all fair value changes on derivatives are recognised in P&L in the period, which can create volatility. The Hedging Log in this template includes an Effectiveness column to support the effectiveness testing documentation required for hedge accounting designation.
What is an NDF and when would a payments company use one?
A non-deliverable forward (NDF) is a forward contract settled in a major currency (typically USD or GBP) rather than the underlying foreign currency, because the underlying currency is not freely convertible or there are restrictions on capital flows. NDFs are commonly used for currencies such as the Indian Rupee (INR), Chinese Renminbi (CNH/CNY offshore), Brazilian Real (BRL), and Korean Won (KRW). A payments company with significant transaction volume through a restricted currency market might use NDFs to hedge the GBP-equivalent value of its net position in that currency, even though it cannot physically deliver the foreign currency at maturity. The settlement amount is the difference between the contracted NDF rate and the fixing rate (a published benchmark rate) at maturity, paid in the settlement currency.
How do I calculate our policy limit per currency?
FX policy limits are typically expressed as a maximum acceptable unhedged net exposure in GBP equivalent per currency. The appropriate level depends on your earnings sensitivity to FX movements, your board's risk appetite, and the volatility of the relevant currency pair. A common starting framework is to set the limit as a percentage of annual revenue or gross profit — for example, unhedged exposure in any single currency should not exceed 5% of annual gross profit at current exchange rates. For a company generating £10m of gross profit, that would imply a per-currency limit of £500,000. More sophisticated frameworks use Value at Risk (VaR) — the maximum loss at a given confidence level (typically 95%) over a defined horizon. For a growth-stage company, the percentage-of-gross-profit approach is usually sufficient and more board-comprehensible than a VaR framework.
Should I hedge 100% of my FX exposure?
Fully hedging 100% of FX exposure is rarely optimal. It eliminates all FX risk, but also eliminates all potential FX gains, imposes transaction costs on every hedge, and requires precise forecasting of cash flows to avoid over-hedging. A layered approach is generally more effective: hedge a core portion of your expected exposure (typically 50–80%) using forwards with staggered maturities, and leave a portion unhedged to benefit from favourable rate movements. The unhedged portion should be sized to remain within your policy limits even under an adverse rate scenario. Review hedge ratios quarterly — as the business grows and FX exposure increases, the appropriate hedge ratio and the mix of instruments will need to evolve.
