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Old 19.09.2015, 19:54
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The_Love_Doctor The_Love_Doctor is offline
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Re: Multi Currency Credit Card

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if they have no exposure, then they have no requirement to hedge and so won't incur any hedging costs. simples.
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Do you actually understand a hedge? It's a position in the market.

So to have a position will cost money if the market works against you it costs money.

You can't hedge against exposure you don't know about.

Perhaps you mean they buy an option rather than a hedge, options are very expensive as someone else is taking the risk.

I know someone who bought a property in CH using pounds, they hedged & the hedge has cost 2,500,000 to date. The CHF asset has increased by 2,500,000 so it nets off as he owns both assets.

You can't hedge against exposure you don't know about.
I think you two have got the wrong end of the stick here. Please read the information about the card and how it works before you start commenting on things you don't know about.

I'm not talking about somebody buying something in Zimbabwe dollars and the credit card operator (MasterCard in this case) charging the card holder in one of the three currencies at interbank rate and having to pay the merchant in Zimbabwe dollars, where you guys think there is no exposure and I would agree with you to acertain extent. Because there is no exposure to Revolut as all of that background stuff is delegated to Mastercard and they just get their fee based on volume. (Mastercard of course have an FX exposure as they charge the customer in one currency and have to pay the merchant in another currency so at some point they have to buy the Zimbabwe dollars for a rate that might be different to that that they charged the customer, incidently I believe Mastercard get around this by charging the card holder at a rate that they can secure a hedge against once all of their positions have been consolidated for the day / given interval. Mastercard publishes these rates from day to another and card issuers can add a mark up to these rates which Revolut doesn't and call it interbank)

Anyway going back to the point I was making, Revolut operate this new concept where you hold three different currencies where you are able to convert money between the three different pairs at interbank rate throughout the day. Revolut is a tech company with no ability to do any financial transactions so the process of exchanging money is delegated to the card issuer Optimal Payments Ltd (which is behind Neteller and a similar Credit Card they operate). Optimal Payments Ltd is the one managing these positions / hedging processes. When I exchange 100 to EUR at a specific point in time, the counter party givng me the EUR is Optimal Payments. They take the opposite side of the trade and do this kind of thing with god knows how many customers, at some point though they have to hedge the exposure to the positions they will invariably build up in one of the currencies.

Think of it like this, Optimal Payments have three pots of GBP, USD and EUR, as the customers exchange money those pots will go up and down and at given interval Optimal Payments will want to go back to the orginal three pots of money that they started off with. How do they do that? Well they have to enter a trade in the opposite direction of the net long / short currency that they find themselves with. This "hedging process" is not free and the exposure is there. If you two can't see it then hopefully you do now
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