Rolling hedge

Most corporate hedging programmes are layered rather than one large contract. Cover is built in tranches across the forecast horizon and, as the nearest tranche settles, a new one is added at the far end. The result is continuous protection with a rate that averages across several strike dates rather than depending on the luck of a single one.

The point that matters, and the one interviewers probe, is that continuous cover is not a fixed price. Every roll is struck at whatever the market is on the day it happens, so a sustained move in the underlying price reaches the company eventually. What the programme controls is the speed of arrival, not the destination.

That makes the hedge a timing instrument. It converts a step change into a gradual one and gives management a defined window to respond, whether by raising its own prices, renegotiating supply, qualifying an alternative source or withdrawing from a product line. A programme whose window is never used bought a delay and nothing else.

The trap to avoid is describing a rolling programme as a fixed cost base. A candidate who says the company is protected has missed the mechanism. A candidate who says the company has bought roughly a year before the new market level reaches its margin has understood it.