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Pre-Priced Parts, Dollar Weakening

How an automotive parts supplier locked in rates to protect margins on MXN exposure

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Industry:Automotive

Client:Illinois-based automotive parts supplier

Region:United States

Exposure:8.9M MXN

Hedge Ratio:100%

8.9M MXN

Exposure

100%

Hedge Ratio

2 Months

Forward Term

Background

An Illinois-based automotive parts supplier negotiated a parts purchase from a Mexican vendor in MXN, then priced components in USD for resale. The Mexican peso had been strengthening against the dollar, eroding expected profit margins.

Products Used

Fixed-Date Forward

Challenge

Complete invoice payment due within two months
Mexican peso strengthening against the dollar, eroding margins
Parts already priced in USD for resale — no ability to adjust prices
Company awaiting vendor credit before having sufficient funds

Strategy

Executed an 8.9M MXN (100%) fixed-date forward closing at a pre-determined date 2 months out
Locked in the exchange rate to prevent further losses
Aligned forward maturity with expected payment date
Protected remaining margin despite adverse currency trend

Outcomes

Locked in exchange rate preventing further margin erosion
Saved significantly versus waiting until invoice due date at spot rate
100% of exposure hedged with a single instrument
Simple, clean execution with no ongoing management required

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