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Initial analysis of options to minimize the effects of currency fluctuations on the commitment authority of the GCF
The Green Climate Fund (GCF) analyzed four options to reduce FX risk: natural hedging, maintaining an FX reserve, using market-based hedging instruments (currency swaps, FX forwards, and FX options), and changing its accounting base currency to EUR. The report recommends a combination of natural hedging, FX reserves, and market-based instruments—specifically currency swaps and FX forwards—while advising against changing the base currency to EUR. It suggests an initial hedge ratio of 50% to avoid speculation and manage the uncertainty of promissory note encashment schedules.
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Document type: Report
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