Given a currency pair and two future dates, I have to exchange the same amount of money but with different directions on these dates (example: my company works in € and I have to pay 1000\$ in one year and I'll get 1000\$ in two years, which I'll exchange to € again). I want to minimise risk and costs.
I see two options:
- Option 1: I can get one forward for each transaction.
- Option 2: While I have two open positions in different directions, the fluctuations of the market do not impact on my global balance. Therefore, instead of getting two forwards as in option 1, I'd wait until the first transaction date and then get a forward for the second transaction.
Option 1 gives me the security that on the 1st transaction date I won't have any cash flow surprise, but I have to pay bank fees for 2 forwards that in some part of the time "compensate each other". Imagine the two future days differ on just one day: the exchange risk is very low and it's probably not worth to get a forward at all.
Now imagine the first transaction is one year in the future and the second is 2 years in the future. With 2 forwards I'll pay for "3 years of uncertainty" (1 of the 1st transaction + 2 of the 2nd one), but the risk is only in the second year, not the first, so there is just "one year of uncertainty". But still, at the end of the 1st year, I don't want a surprise with the first exchange.
Which is the best product that solves this problem? I've read about swaps, but I don't know if a swap can be subscribed with an initial transaction in the future...? Is there the option to assure today an initial exchange and a final exchange, both in the future, that takes into account only this 1 year risk?