Author: Barlas, Stephen; Bollinger, Michael; Whitney, Dennis
Date published: January 1, 2011
Another big issue for large corporations when the Dodd-Frank bill was debated was the regulation of derivatives and swaps. For the most part, the law says companies that use swaps have to report execution of orders to a clearing agency. That process means new fees for companies. Foreign-exchange (FX) swaps and FX forwards are a carefully defined special class of transactions that is included within the definition of "swap" under the bill unless the Secretary of the Treasury makes a written determination that FX swaps and/or FX forwards shouldn't be regulated as swaps and aren't structured to evade Dodd-Frank. Dorothy Coleman, vice president, tax, technology & domestic, National Association of Manufacturers, says, for some companies, managing fluctuating currency exchange rates is the primary focus of their risk management and hedging programs. The use of FX swaps and FX forwards is paramount to these hedging programs. "Many American manufacturers hedge the economic risk for long-dated exposures as well as short-dated exposures," Coleman explains. "Any actions that potentially discourage the use of derivatives or discourage the use of derivatives for a specific tenor for hedging foreign currency risk could lead to increased economic risk for manufacturers and increased volatility in cash flows and earnings."