FX and Interest Rate Hedging Policy Template

FX and Interest Rate Hedging Policy: [Group name]

Board-approved policy that turns the treasury policy's risk appetite into operating rules for foreign exchange and interest rate risk: exposure identification and measurement, layered hedge bands, approved instruments, counterparties and documentation, the hedge accounting approach under IFRS 9 (or ASC 815 for US GAAP reporters), dealing authorities and controls, valuation, reporting and breaches. It is the "risk management strategy" document that each hedge designation refers to. Accounting standards are cited by name and paragraph number only; derivative regulation is cited from EMIR (Regulation (EU) No 648/2012 as amended, including Regulation (EU) 2024/2987) and 17 CFR 50.50, as of 2026-10. Replace every [bracketed] value and every row marked Example. The worked example uses the fictional Corvid Commerce Group (parent Corvid Commerce Group plc, England and Wales; EUR functional currency; a net long USD position from US subscription sales and GBP intercompany exposures). This is a document format, not financial, investment, tax, legal or accounting advice. Obtain the standard or law for the normative text.

Document control

Approvals

Revision history

Contents

• 1. Purpose and scope
• 2. Objectives and risk appetite
• 3. Exposure identification
• 4. Exposure measurement and forecasting
• 5. FX hedging rules
• 6. Interest rate hedging rules
• 7. Approved instruments and pricing
• 8. Counterparties, documentation and regulation
• 9. Hedge accounting approach
• 10. Authorities and dealing controls
• 11. Valuation and reporting
• 12. Breaches, exceptions and review
• 13. Glossary and references
• Appendix A. Worked hedge programme
• Standard and licence note

1. Purpose and scope

This policy sets how [Group name] identifies, measures and hedges foreign exchange (FX) and interest rate risk arising from its business and financing. It applies to every entity listed in the Treasury Policy. Commodity, inflation and equity price risks are [not hedged / covered by a separate policy].

All external hedging is executed centrally by group treasury. Name the dealing entity for each type of hedge, because it decides which derivative regime applies (section 8.3). Example: group treasury sits in Corvid Commerce GmbH (CC-DE), which deals the FX hedges of the group's operating exposures; the parent, Corvid Commerce Group plc (CC-HOLD), deals the interest rate hedges of the facilities it borrows and the FX swaps on its own intercompany loans. Other subsidiaries report their exposures to group treasury and, where needed, receive internal hedges from the treasury entity at market rates. A subsidiary may deal with a local bank only where law requires it (for example where onshore currency rules apply) and only with written approval of the group treasurer.

2. Objectives and risk appetite

2.1 Objectives

2.2 Risk appetite statements

3. Exposure identification

3.1 Exposure types

3.2 Exposure register

Keep one register, refreshed [monthly], with one row per entity, currency pair and month.

4. Exposure measurement and forecasting

4.1 Probability evidence

A forecast transaction may be hedged only if the following evidence is on file (it also supports the "highly probable" assessment for IFRS 9 para 6.3.3, or "probable" under ASC 815):

1. The forecast comes from the approved budget or the latest rolling forecast, by month and currency.
2. Actual flows in the same category for the last [eight] quarters were at least [90%] of the forecast amount (forecast accuracy test).
3. The business owner confirms there is no planned change (supplier or customer switch, contract end, change of invoicing currency, or for intragroup flows a change of fee basis).
4. The hedged amount is within the bands of section 5.

4.2 Forecast accuracy

Track accuracy by currency and horizon. If accuracy for a horizon falls below [90%] in two consecutive quarters, reduce the maximum of that band by [20] percentage points until accuracy recovers.

4.3 Measures used in reporting

The FX hedge ratio for a band is:

where $N_{i}$ is the notional of hedge $i$ settling in band $b$ and $E_{b}$ is the forecast exposure in that band.

5. FX hedging rules

5.1 Committed exposures

Hedge committed foreign-currency exposures above [EUR 250k equivalent] at [90% to 100%] when the commitment is signed, unless a natural offset in the same currency and month exists.

5.2 Forecast exposures: layered bands

Months are counted from the report date to the expected settlement month.

Add hedges [monthly] in roughly equal layers so that each month's exposure is hedged gradually over the horizon. The weighted average hedge rate then moves smoothly toward market rates rather than in a single step.

5.3 Natural offsets

Before hedging, net receipts and payments in the same currency and month within the same entity. Do not net across entities unless cash is actually pooled in that currency.

5.4 Balance sheet exposures

Hedge foreign-currency monetary items above [EUR 1,000k equivalent] at [90% to 100%] with FX forwards or FX swaps rolled [monthly / quarterly]. Gains and losses on these hedges offset the IAS 21 revaluation in profit or loss without hedge accounting, so they are normally not designated.

5.5 Translation and net investment

Translation exposure is not hedged by default. A net investment hedge (using foreign-currency debt or derivatives) requires a board decision that states the purpose (for example protecting a leverage covenant measured in EUR), the maximum hedge ratio and the cash flow consequences of settling the hedge, and a designation document (IFRS 9 para 6.5.13, or ASC 815-35 for US GAAP reporters).

6. Interest rate hedging rules

6.1 Fixed share band

6.2 Rules

1. A swap's notional and maturity must not exceed the debt it hedges, measured against the debt maturity profile. A swap that ends with the current facility is the default; a swap may run beyond the current facility's maturity only under rule 2.
2. Forward-starting swaps are allowed only for drawn debt or for a refinancing or new borrowing in the board-approved funding plan, may start no more than [24] months forward, and must not run beyond the planned maturity of the debt they hedge. If the planned borrowing is cancelled or reduced, close out the excess within [one] month.
3. Measure the fixed share on bank and capital market borrowings only; lease liabilities are fixed by nature and are reported separately.
4. Match swap reset dates, day count and benchmark (for example 3-month EURIBOR, ACT/360) to the hedged loan wherever practical; differences are sources of ineffectiveness.
5. Bought caps are allowed where the business wants protection with upside participation; the premium needs CFO approval.
6. When debt is repaid early, close out or redesignate the related swap within [one] month.

6.3 Sensitivity

Example: Corvid's floating debt is the EUR 30,000k term loan (the EUR 20,000k revolving facility is undrawn) and a EUR 21,000k pay-fixed swap maturing 2028-06-30 is in place, so unhedged floating debt is EUR 9,000k and a 100 basis point rise adds 0.01 x 9,000 = EUR 90k per year. HDG-RA-03 sets EUR 500k, so the position is well within appetite and the fixed share of 70% sits inside the 40% to 75% band. The risk to watch is the cliff on 2028-06-30, when the facility and the swap both end (see Appendix A.3).

7. Approved instruments and pricing

7.1 Approved instruments

Instruments not listed are prohibited (Treasury Policy section 9.3).

7.2 Forward pricing check

The dealer checks each forward quote against the interest rate parity price before execution. For a pair quoted as units of quote currency per unit of base currency (for EUR/USD, USD per EUR), with money market rates on an ACT/360 basis:

where $S$ is spot, $r_{q}$ the quote-currency rate, $r_{b}$ the base-currency rate and $d$ the days to settlement.

Example: spot EUR/USD 1.0950, USD rate 4.00%, EUR rate 2.00%, 179 days: F = 1.0950 x (1 + 0.04 x 179/360) / (1 + 0.02 x 179/360) = 1.0950 x 1.019889 / 1.009944 = 1.1058. Corvid sells USD forward, so a bank quote of 1.1066 is 8 pips above the parity price (fewer EUR for each USD sold) and is the cost of the trade.

7.3 Competitive pricing

Obtain at least [three] quotes for trades above [EUR 5m equivalent], or use a multi-bank electronic platform that records all quotes. Record the quotes, the winning price and the reason if the best price was not taken.

8. Counterparties, documentation and regulation

8.1 Counterparties

Trade only with relationship banks that meet the Treasury Policy section 7 rating and limit rules. Spread hedges so that no bank holds more than [40%] of the outstanding notional of any currency pair.

8.2 Documentation

8.3 Regulatory obligations

Status as of 2026-10; check local law.

9. Hedge accounting approach

9.1 When to designate

9.2 Documentation and policy choices

1. Prepare a Hedge Designation Documentation record (finance/hedge-designation-documentation) for every designated relationship on or before the trade date (IFRS 9 para 6.4.1(b); ASC 815-20-25-3).
2. Quote the risk management strategy ID from the Document control table (RMS-FX-01 or RMS-IR-01) and state the specific objective for that relationship.
3. Record the group's accounting choices once here and apply them consistently:

9.3 Watch list

The IASB published an exposure draft on Risk Mitigation Accounting (proposed amendments to IFRS 9 and IFRS 7, dynamic risk management) in December 2025; the comment deadline was extended to 2026-11-30. It is a proposal, not a standard. The group financial controller assesses its relevance if it is finalised.

10. Authorities and dealing controls

10.1 Authorities

Amounts are notional per trade, in EUR thousand. This table repeats the Treasury Policy section 2.3 and the Delegation of Authority Matrix (finance/delegation-of-authority-matrix) sections 5.5 and 6; the three must be identical and change together.

10.2 Dealing controls

11. Valuation and reporting

11.1 Valuation

Value all derivatives [monthly] using market data from [independent source], with credit and debit valuation adjustments for fair value measurement under IFRS 13 (or ASC 820). The back office reconciles valuations to bank statements each quarter end and investigates differences above [EUR 25k].

11.2 Monthly hedge report

12. Breaches, exceptions and review

1. A hedge ratio outside its band at month end is a breach. Correct it within [one] month, by adding hedges or, if over-hedged because the forecast fell, by closing out or rolling the excess.
2. An over-hedge in a designated cash flow hedge may also require the relationship to be rebalanced or partly discontinued; inform the group financial controller the same day.
3. Record every breach in the Treasury Policy breach log and report it to the Treasury Committee.
4. Hedging outside the bands for a specific business reason (for example a large contracted purchase) requires board approval in advance.
5. Review this policy annually with the Treasury Policy, and whenever the business model, currency mix, debt structure or accounting framework changes.

13. Glossary and references

13.1 Glossary

13.2 References

• IFRS 9 Financial Instruments, Chapter 6; IFRS 7; IFRS 13; IAS 21 (IFRS Foundation; names and paragraph numbers only).
• FASB ASC 815 Derivatives and Hedging; ASC 830; ASC 820; ASU 2025-09 Hedge Accounting Improvements (November 2025) (topic and paragraph numbers only).
• IASB Exposure Draft, Risk Mitigation Accounting (December 2025; comments to 2026-11-30), proposal only.
• Regulation (EU) No 648/2012 (EMIR) as amended by Regulation (EU) 2019/834 and Regulation (EU) 2024/2987, EUR-Lex.
• 17 CFR 50.50, eCFR.
• ISDA 2002 Master Agreement and ISDA fallback protocol (names only).

Appendix A. Worked hedge programme

A.1 USD forecast receipts at the report date 2026-12-31 (Example)

Corvid is net long USD. Corvid Commerce Inc (CC-US) budgets FY2027 subscription revenue of USD 24,640k against USD costs of USD 4,107k, a net USD 20,533k (ASM-014 in the Annual Budget, finance/annual-budget). CC-US pays most of that surplus to CC-DE as a monthly USD platform fee, forecast at USD 16,000k for FY2027 (USD 4,000k a quarter, about 64.9% of CC-US billings of USD 6,160k a quarter). The fee is the hedgeable transaction exposure; the USD 4,533k retained in CC-US (20,533 - 16,000) is translation exposure and is not hedged (section 5.5). Treasury sells USD forward against EUR in the bands of section 5.2.

Check: 3,200 + 3,000 + 2,000 + 1,200 = 9,400; 9,400 / 16,000 = 58.75%, shown as 58.8%. The Q2 2027 hedges are three monthly forwards of USD 1,000k each, one per fee date. The April forward covers the first USD 1,000k of the April fee (forecast about USD 1,333k) settled on 2027-04-30 and is designated as a cash flow hedge in the worked example of the Hedge Designation Documentation (finance/hedge-designation-documentation).

Sensitivity of the unhedged amount: the net USD exposure of USD 20,533k less USD 9,400k hedged leaves USD 11,133k unhedged (USD 6,600k of fee plus USD 4,533k retained in CC-US). At the budget rate of 1.10 it is worth EUR 10,121k (11,133 / 1.10). If the USD weakens 10% and EUR/USD rises to 1.21, it is worth 11,133 / 1.21 = EUR 9,201k, so the adverse effect is about EUR 920k, inside the EUR 1,500k appetite in HDG-RA-01. Before hedging, the same shock costs about EUR 1,697k (SEN-003 in the Annual Budget: 20,533 / 1.10 x (1 - 1.10 / 1.21)), above the appetite, which is why the bands are needed. Note that a 10% rise in the rate reduces the EUR value by only 9.1% (920 against 1,012), because the value is the reciprocal of the rate; state the direction of the shock whenever you report the figure.

A.2 GBP balance sheet hedge (Example)

The parent's GBP 10,000k loan to Corvid Commerce Ltd is hedged 100% with a three-month FX swap (sell GBP forward), rolled each quarter. The revaluation of the loan and the swap offset in profit or loss; no hedge accounting is applied. The GBP 18,000k net investment in the UK and the USD 25,000k net investment in the US are not hedged (HDG-RA-02).

A.3 Interest rate position (Example)

Position at 2026-12-31:

Check: 21,000 / 30,000 = 70.0%, inside the 40% to 75% band for years 1 to 2; 30,000 - 21,000 = 9,000; 0.01 x 9,000 = EUR 90k, inside the EUR 500k appetite in HDG-RA-03. The swap ends on the same day as the facility, as rule 6.2(1) requires.

Forward view and proposal. Both facilities mature on 2028-06-30, and the board-approved Liquidity and Funding Plan (finance/liquidity-funding-plan) includes a refinancing with a new five-year term loan of EUR 30,000k, to be signed by 2027-06-30. Without further action the fixed share of the replacement debt from 2028-07-01 would be nil, below the 40% minimum for that part of years 1 to 2.

Check: 15,000 / 30,000 = 50.0%, inside the year 1 to 2 band (40% to 75%) and the year 3 band (25% to 75%); 0.01 x (30,000 - 15,000) = EUR 150k. The swap starts 18 months after the report date, within the 24-month limit in rule 6.2(2), and ends before the planned 2032 maturity of the replacement loan. Execute it only after the board has approved the refinancing in the funding plan, designate it as a cash flow hedge of the highly probable interest payments on the replacement loan, and close it out if the refinancing is cancelled. A swap that simply ran past 2028-06-30 without such a plan would be an open position and is prohibited.

Standard and licence note

Structure aligned with common corporate treasury practice for hedging policies. Based on public law where cited: Regulation (EU) No 648/2012 and its amendments (EUR-Lex, reuse with acknowledgement) and 17 CFR 50.50 (US federal work, public domain). IFRS 9, IFRS 7, IFRS 13 and IAS 21, FASB ASC topics and ASU 2025-09, and the IASB Risk Mitigation Accounting exposure draft are cited by name and paragraph or topic number only; no text from IFRS Foundation or FASB material is reproduced or paraphrased, and neither body endorses this template. ISDA documents are cited by name only. All text is original. Check the current official version of each standard and law, and local law in each country of operation, before use. Corvid Commerce Group and every figure are fictional. Template licence: MIT.