How to answer this Technical interview question about Currency Hedging for Senior-Level Sales and Trading?

How would you structure a hedging strategy for a client exposed to currency risk in emerging markets?

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Sales and Trading

Technical

Asked at

UBS

Difficulty :

Hard

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Explanation

This question evaluates your understanding of hedging techniques and your ability to manage risks associated with currency volatility. Recruiters want to see your ability to tailor risk management strategies to specific client needs. Common pitfalls include failing to consider the unique challenges of emerging markets or providing overly generic solutions. A strong answer demonstrates a detailed approach, including the use of financial instruments like forwards, options, or swaps, while aligning the strategy with the client’s risk tolerance. Preparation involves studying hedging tools and real-world applications.

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Answer Example

I would start by assessing the client’s exposure, understanding their business operations, and determining their risk tolerance. Based on this, I would propose a hedging strategy using a mix of forward contracts for fixed-rate protection and currency options for flexibility. For example, I advised a client with significant exposure to the Brazilian Real, implementing a combination of forwards and options that reduced their currency risk by 30% while maintaining liquidity.

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