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Treasurers seek out structured products Back  
Structured derivatives, conditional forward contracts, and callable range accruals are all products now used regularly by Ireland’s corporate treasurers to hedge against risk.
This growing sophistication amongst Ireland’s corporate treasury sector is a trend identified in this year’s annual ‘Guide to Corporate Treasury’ which is published alongside this month’s issue.

Ireland’s participation in the single currency, and increasingly volatile foreign exchange markets, has led to increased demand for esoteric, structured products, with plain vanilla hedges now being over-looked in favour of more tailored products.

John Moclair, head of corporate sales at Bank of Ireland Global Markets, is finding that due to the increasing complexity of managing financial risk, corporate treasurers are seeking more innovative solutions to their treasury requirements. He says that whereas before treasurers would have used forward exchange forward contracts to lock in a specific exchange rate and hedge against FOREX risk, corporates are now looking for treasury products that are tailored to their company’s specific circumstances, leading to a growing demand for options based products.

Likewise, Brian Lynch, head of sales with Ulster Bank Financial Markets, says that he has seen an increasing use of tailored solutions by corporates with respect to interest rate hedging. ‘Whilst still the most popular, the plain vanilla fixing or capping strategy is seen more and more as a ‘square peg in a round hole’ from many requirements,’ he says.

And with the rise in oil prices over the year, commodities have increasingly moved under the treasury umbrella, with many corporates realising that they were more exposed to commodity risk than interest or foreign exchange risk.

‘Treasury managers are now looking to include commodities within the framework of their hedge policies. Not only do they apply the same guidelines laid out in the management of their interest rate and foreign exchange exposure, but they also look to the same hedge instruments widely available in the financial markets,’ says Orrin Middleton of Barclays Capital.

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