How would you accomplish expose netting with currencies to two countries that tend to go up and down together in value?
You got the name wrong. It is called Exposure Netting. Use a search engine for details.
http://financial-dictionary.thefreedictionary.com/Exposure+netting
To accomplish exposure netting with currencies of two countries that tend to go up and down together in value, you would need to employ a financial strategy called currency hedging. Currency hedging aims to protect against potential losses due to currency fluctuations by combining two or more positions with opposing currency exposures.
Here's how you can achieve exposure netting using currency hedging:
1. Identify the currencies involved: Determine which currencies you want to hedge, keeping in mind that they should be from countries that generally have similar movements in value.
2. Determine your exposure: Analyze the extent of your exposure to each currency. This could be due to trade, investments, or any other financial activities involving those currencies.
3. Choose a hedging instrument: There are several ways to hedge currency exposure, such as forward contracts, futures, options, or currency swaps. Select the method that best suits your needs and preferences.
4. Establish a hedging strategy: Decide on your hedging ratio and time frame. The hedging ratio refers to the proportion of your exposure that you want to hedge. For example, a 50% hedge ratio means you only hedge half of your currency exposure. The time frame can be short-term or long-term, depending on your goals.
5. Execute your hedging trades: Implement the chosen hedging strategy by opening positions in the selected hedging instruments. This could involve entering into currency contracts with specified terms, buying or selling options, or engaging in other relevant transactions.
6. Monitor and adjust: Regularly monitor the performance of your hedging positions and make adjustments as necessary. Currency markets can be volatile, so it's crucial to stay vigilant and react to any changes that may affect your hedging strategy.
7. Evaluate and review: Periodically evaluate the effectiveness of your hedging strategy and make adjustments based on your financial goals, risk tolerance, and changing market conditions.
It's essential to note that currency hedging involves risks, and it's advisable to consult with a financial advisor or expert in foreign exchange before implementing any hedging strategy.