Natural hedge
What is a natural hedge?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
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A natural hedge is currency protection a business already has from its own structure rather than from a contract: costs in the currency it earns, or debt in the currency its customers pay in. An exporter earning US dollars that borrows US dollars against its US-dollar receivables repays from their remittances, and the exchange rate mostly cancels out of the loan. A desk starts from the natural hedge to find the net exposure, and only then asks how much of what remains the forward contracts cover.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
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