Balancing Digital Aspirations While Addressing Risk Management Fundamentals: Observations From Citi Treasury Diagnostics

32 FX RISK MANAGEMENT: INSTRUMENTS Reasons for Choosing an FX Option Strategy 24% To protect budget rates 14% To express a market view To improve hedge performance for high cost of carry currencies 23% 37% Options are in policy, but not presently in use 14% To hedge exposures with no offsetting cash flow (e.g. a net investment exposure) To hedge uncertain exposures 43% “ Options continue to be an important part of our risk management tool-kit. Although FX volatility has fallen back to relatively low levels, the benefit of options was evident as volatility surged in 2020.” — European Treasury Manager Per corporate risk management policies, spot, forwards, and swaps remain the most commonly permitted financial instruments. 43% of survey participants reported option-based strategies as being permissible with 43% citing exposure uncertainty as the primary reason for their use. Policy-Permitted Financial Instruments Forwards 81% FX Options — Premium Payable 42% FX Options — Zero Cost 43% Spot 87% None of the above 5%