To ensure sustainable growth, ZTE’s FX team developed a comprehensive FX risk management solution in partnership with Citi’s team.
By implementing a holistic approach across the full business lifecycle, the team aimed to reduce FX risks from the outset. The FX team advised and supported the local sales team to review their contract commercial terms.
The first step was to categorise currencies into three groups, each with specific risk level and control requirements.
Next, the FX team advised the local teams to sign commercial contracts only if there is a revenue repatriation solution in place, especially for countries with USD liquidity concerns. Additionally, for contracts that cannot be settled in hard currencies, the FX team estimated the buffer required to mitigate the risks and advised on clauses for FX risk‑sharing.
For the residual FX risks, a systematic hedging strategy decision framework was developed, which categorised currencies based on hedging costs and risks, allowing the team to tailor hedging approaches. For currencies presenting high risk and hedging cost, ZTE introduced FX option structures in addition to forwards, to achieve a balance between risk control and cost.
Partnering with Citi, ZTE utilised CitiFX® Smart Monitor to determine an optimal pricing tenor based on carry cost and volatility relative level. The team also strategically adjusted their hedge ratio in reference to CitiFX® Global Scorecard signal.
Furthermore, ZTE optimised the hedging execution by locking in the optimal pricing tenor through an auto‑reset feature, allowing ZTE to fix a protection range but with resets of the strike level to its reporting revaluation rate on regular basis. The solution, which ZTE has developed with Citi, has improved the hedging cost and execution efficiency.
ZTE updated its revenue collection model to receive local currency in frontier markets. ZTE strategically secured USD liquidity by leveraging Citi’s extensive global network to convert local currencies through onshore FX deliverable forwards.
This solution ensured timely income collection from local customers, especially at times of tight USD liquidity.
Through these dynamic holistic approaches, the team effectively improved FX risk management, enabling successful growth in emerging markets with minimal cost pressure on profit margin.
