How can a business hedge the FX exposure on an existing business loan?

A business can still manage the currency risk on future repayments after the loan has been signed. It has a series of principal and interest payments in the loan currency, and their cost in CHF can change until the required currency is purchased.

What creates the FX exposure on an existing loan?

A Swiss company may borrow in EUR, USD, GBP or another currency to finance an acquisition, equipment, property, inventory or an overseas operation. If most of its revenue and liquid assets remain in CHF, each repayment creates a future need for the loan currency. If that currency strengthens against the franc, the repayment costs more in CHF.

Which part of the loan should the business assess?

Start with the repayment schedule, not the original loan amount. For each payment date, identify:

• the principal due,

• the expected interest,

• funds already held in the loan currency,

• reliable revenue expected in the same currency,

• the level of exchange-rate uncertainty the business is prepared to accept.

Same-currency balances and revenue provide a natural hedge. They can be used directly for repayments, so only the remaining net amount needs to be converted or considered for hedging. A multi-currency account can support this setup by allowing the business to hold the loan currency and retain incoming funds in that currency for scheduled repayments.

How can forward contracts be used for loan repayments?

Where a repayment amount and date are sufficiently certain, a forward contract can fix the exchange rate in advance. The company may hedge the full net exposure, part of it or separate instalments. The purpose is not to guarantee the most favourable rate. It is to make a defined future CHF cost more predictable.

A variable-rate loan needs additional care because the interest component may not be fully known until the next reset. The company can hedge the confirmed principal and review the estimated interest separately as the payment date approaches.

Example: a natural hedge reduces the amount to cover

Consider a Swiss manufacturer with a ZAR 8 million loan outstanding in South Africa, with principal repayments of ZAR 1 million every six months. Assuming an annual interest rate of 10% calculated on the opening ZAR 8 million balance, six months of interest would amount to approximately ZAR 400,000. The first total repayment would therefore be ZAR 1.4 million.

The company also expects ZAR 1 million of revenue during the same period. If the timing and amount are sufficiently reliable, that revenue can cover part of the repayment. The remaining net exposure is ZAR 400,000. The company could then assess whether to leave that amount open or fix the CHF cost of purchasing the remaining ZAR 400,000 with a forward contract.

The exchange rate can significantly affect the CHF cost of a ZAR repayment. Between 6 August 2025 and 6 August 2026, the CHF cost of purchasing the same amount of ZAR increased by approximately 9%. A forward contract could have fixed the CHF cost in advance, although the company would not have benefited from any later favourable exchange-rate movement.

Illustrative example. It excludes fees, changes to the interest rate and any amendment to the loan terms.

What happens if the loan changes?

A hedge should remain aligned with the underlying loan. Early repayment, refinancing, revised instalments or a change in the interest amount can create a mismatch. Adjusting or closing the hedge may generate additional costs or a financial gain or loss, depending on market conditions and the contract terms.

Before entering a hedge, the business should review the loan terms, repayment certainty, natural offsets, liquidity needs and the availability and suitability of the relevant instrument.

Important: This article is for general information only and does not constitute investment, accounting, tax, legal or financial advice. Forward contracts are subject to credit assessment, eligibility, availability and agreed terms.