Film Accounting Glossary
Currency hedge
What is a currency hedge?
Also called forward contract, or FX hedge.
A currency hedge is a financial contract, usually a forward or an option, that locks in an exchange rate so a production shooting abroad knows what its foreign spend will cost in its home currency.
Without one, a budget financed in dollars and spent in pounds or euros carries real exposure over a months-long shoot. The hedge cost belongs in the budget, and unhedged movement shows up as a variance nobody in a department caused.
Example
A dollar-financed budget will spend £2.4M in the UK. Booked at 1.27 that is $3.05M; if the rate moves to 1.34 across a five-month shoot it becomes $3.22M, a $170,000 swing no department caused. A forward contract removes the exposure.
Figures are illustrative, chosen to show the mechanics rather than to quote market rates.
Where you'll see it
Arranged at closing by the financing side. The hedge cost is budgeted, and any unhedged movement is isolated in its own variance line.
Common mistake
Leaving foreign spend unhedged and calling the result a production variance. Nobody in a department caused it, and no department can fix it.
Related questions
- Why do international productions hedge currency?
- Because a budget financed in one currency and spent in another carries months of exchange exposure, which can move the home-currency cost by a material amount.
- Who arranges a currency hedge on a film?
- The financing side, usually at closing, with the cost of the hedge budgeted as a financing line rather than charged to a production department.