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Old 02.09.2011, 19:26
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Re: Salaries and Exchange Rates

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No this is wrong. You pay an option premium (which is established based on the time to run, relationship of strike price to current price and analysts' estimates of future volatility) for an option which can either rise in value if the currency pair ratio rises (CALL) or falls (PUT).

If you are agreeing a salary in CHF then you would like to benefit from the upside, but limit the downside. Therefore you could buy an option that increases in value as the CHF value falls, and so you remain in about the same position as if it hadn't.

It is like an insurance policy, and it has a premium to be paid for however long you want to continue the arrangement. It needs to be tracked as well as the overall amount covered by your "policy" will vary with the change in currency.

AYB
A hedge could be forward contracts, swaps, options going short or long, they all have a price & nothing is free. Presumably you would just short in this case, it's the cheapest option.
Many small business's bought interest rate hedges protecting themselves from rising interest rates, as interest rates fell they were shocked to find there debt rose hugely.
Hedges can be very dangerous if you don't know what it's about, I know an ex trader who bought an apartment in CH paying in GBP, his hedge has cost him over £2,000,000 to date, he was planning on doubling up when I spoke with him recently.!
Warren Buffet described such financial instruments as weapons of mass destruction.
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  #22  
Old 02.09.2011, 20:08
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Re: Salaries and Exchange Rates

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While on the subject of exchange rates, my company decided last month to cut the pay of contractors by 10% as CHF is too high and all sales are in Euros. My own hourly pay went down by 6% and the rest was covered by my agent. Take it or leave it kind of negotiation. But they have put a clause to go back to original pay once euro is 1.30
About "back to original pay once euro is 1.30" and if it goes to 0.9?

If I were you I would start looking for a contract with a firm that has lower euro risk.
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Old 03.09.2011, 00:22
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Re: Salaries and Exchange Rates

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But hey, don't listen to me
Easily done, I find
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Old 03.09.2011, 09:36
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Re: Salaries and Exchange Rates

I look forward to you making a point worthy of note.

AYB

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Easily done, I find
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