i see some of my clients struggling with how to determine their hedge ratio. i.e what percentage of their exposure to hedge. 50%, 100% or somewhere in between ?
100% makes sense often as FX risk is not your core business risk so it should be mitigated. But mistakes and uncertainty in determining your FX exposure means that in real life often you dont exactly hedge 100%. In some cases it can lead to an OVERhedge. Which some companies clearly want to avoid as it is harder to explain then an UNDERhedge (though it shouldnt be).
So how did you determine your hedge ratio ? Or risk apetite, how you want to call it.
Thnx for the input.
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