We had a lively discussion. Everyone finds hedging in Brazil expensive and complicated, but most agreed it was necessary to do it. The one exception was a company who feel they have the pricing power to pass on any losses to the customers.
The main points:
Hedging the BRL is expensive, so most companies modify their standard hedging policies. The most common modification seems to be to hedge the balance sheet exposures, and drop cash flow hedging.
There are significant complexities with the onshore and the offshore market, with the onshore market often attracting transaction taxes, as well as presenting documentation issues.
Pricing can vary, at least onshore, so it is worth negotiating. Onshore hedging usually means trading by phone.
The offshore market and the onshore market are both quite liquid, at least in the American time zone – so the afternoon in Europe. Options are also easily available: this enables various strategies.
Despite the cost, balance sheet hedging is usually considered to be worthwhile, due to the significant volatility of the currency.
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