My last Edition mapped the FX Liquidity Chain – the mechanical sequence by which a G7 policy move becomes an African balance sheet event, moving from rate tightening through dollar strength, interbank illiquidity, and into supplier payments, loan repayments, and dividend repatriation simultaneously. The lesson was about the cost of waiting: preparation that is deferred into a tightening window becomes preparation that cannot be completed in time.
This Edition begins where that chain ends.
Once the window has closed and the liquidity has tightened, the question is no longer whether the hedge was in place in time. It is whether the hedge that was in place covered the full shape of the exposure, or only the part that was easiest to define when the mandate was approved. The FX Liquidity Chain does not stop at the hedge boundary. It runs through it and into everything that sits beyond the definition.
The cost of waiting and the cost of defining risk too narrowly are not separate lessons. They are the same lesson at different stages of the same cycle.
The Hedge That Was Already in Place
It was Q1 2022. The Federal Reserve had made clear that the tightening cycle was not a signal. It was a schedule. The Fed hiked from 0.25% – 0.50% (March 16). By Q2 June, it moved from 1.75% – 2.50%
Across the global multinationals and large corporates, I was covering at the time, the pattern was consistent. Dollar-denominated supplier payments. Intercompany loan repayments, dividend remittances, etc., were building toward mid-year. Most of these clients had businesses/ exposures in Nigeria, South Africa, Kenya – multiple African markets, multiple obligation types, and balance sheets that connected all of them.
Where mandates had been approved, and executed documentation in place, we moved. Deliverable forwards, non-deliverable forwards, FX swaps, interest rate swaps, commodity swaps, etc. – structured to the specific exposure, the specific market, the specific horizon. The rates were locked and the hedges closed accordingly.
By Q2 – when the dollar had strengthened materially, African interbank liquidity had tightened, and the parallel market dynamics in Nigeria had diverged sharply from the official rate, those positions held exactly as structured.
But across several of those balance sheets, something still moved.
The instruments performed exactly as structured. The execution was sound. The hedges did what they were designed to do.
What Q2 revealed was not a flaw in the hedging. It was the edge of the definition, the point where the hedge boundary had stopped, and the exposure had not.
Edition 4 was about the cost of waiting, while this edition is about the cost of defining risk too narrowly.
The Hedging Boundary: Where the Hedge Ends
Hedging is often described as protection against FX movement. That description is incomplete.
Hedging covers:
• A defined notional
• Over a defined time horizon
• Under defined liquidity conditions
Everything outside that definition remains exposed.
In 2022, that boundary became visible in real time.
The dollar strengthened. Local currencies weakened. Liquidity tightened. Obligations converged.
The hedged exposures held their value. The unhedged exposures did not.
The structure was working exactly as designed. The problem was not execution. It was scope.
There is a name for what happens when a definition, once set, becomes invisible.
Behavioural researchers call it scope insensitivity, the documented human tendency to treat the original boundaries of a problem as its natural boundaries, even as the problem itself expands. In FX risk management, it operates precisely and quietly; the exposure that was defined at the point of hedge approval becomes, over time, the exposure that is assumed to be complete. Volume changes, timing shifts, and market structure adjustments accumulate outside the hedge boundary – not because anyone decided to leave them unhedged, but because the original definition was never updated.
The instruments do not know this. They hedge exactly what they were told to hedge. The gap is not in the market. It is in the boundary that leadership drew, and then stopped redrawing.
In 2022, that gap became measurable.
How the 2022 Cycle Moved Through the Balance Sheet
The sequence was mechanical.
→ G7 rate tightening accelerated
→ USD strengthened across G10 and EM
→ FX liquidity tightened across African interbank markets
→ Forward pricing adjusted
→ Trade finance conditions tightened
→ Multiple obligations began to reprice simultaneously
What mattered was not whether a hedge existed.
What mattered was which part of the balance sheet it covered, and which part it did not.
Nigeria (NGN / USD / GBP / EUR): Access vs Definition
In Nigeria, the distinction was not only price – it was access.
By mid-2022, FX liquidity conditions had tightened materially. The official and parallel market dynamics diverged further, and execution timing became as critical as pricing.
The hedged supplier payments were covered. The forward rates held.
But additional exposures emerged.
• Supplier volumes increased beyond initial forecasts
• Payment timing shifted
• FX access windows narrowed
The original hedge definition did not extend to these changes. Companies that had defined their exposure as static discovered that their risk was dynamic.
Leadership insight: Hedging covers what has been defined. In constrained markets, the definition of exposure matters as much as the instrument used to hedge it.
South Africa (ZAR / USD / GBP / EUR): Liquidity vs Coverage
The rand remained liquid. Execution was always possible. That was never the issue.
The divergence appeared elsewhere.
Companies that had hedged their known dividend flows and supplier payments saw those positions perform as expected, but where exposures expanded, additional imports, margin pressures, and revised funding needs – those increments were executed at prevailing spot rates.
The market allowed execution. It did not preserve pricing.
Leadership insight: Liquidity ensures access. It does not extend protection beyond the hedge boundary.
Kenya (KES / USD / EUR): When Exposures Converge
Kenya presented the most complex version of the same dynamic.
Multiple obligations began to converge:
• USD supplier payments
• EUR equipment financing
• Local currency revenue under pressure
The dollar strengthened against both KES and EUR during the same period. What had been manageable as separate exposures became compressed into a single FX event.
The hedged components performed. But the interaction between exposures, across currencies and across time, created new risk that had not been isolated in the original hedge structure.
Leadership insight: Hedging individual exposures does not automatically hedge the interaction between them.
UK & EMEA (GBP / EUR / USD): Where the Residual Risk Lands
At the group level, the outcome was not visible as a hedging failure.
It appeared as:
• Variance against budgeted FX assumptions
• Pressure on repatriated earnings
• Increased cost of intercompany funding
The hedges that had been executed did their job. The variance came from what sat outside them.
For group leadership, the distinction is critical:
The question is not “did we hedge?”
The question is “what did we choose not to define as hedgeable?”
The Hedging Definition Framework
Across these experiences, one model has held consistently:
1. Exposure is not static. It evolves with volume, timing, and market structure.
2. A hedge covers the definition, not the intention. The market recognises only what has been explicitly structured.
3. Residual risk is a leadership choice. Every hedge creates a boundary. What sits outside it is not accidental.
4. Interaction risk is real. Multiple exposures can combine into a new, unhedged risk.
5. Liquidity does not extend coverage. It only allows execution at the prevailing price.
This is not a checklist. It is a way of seeing the balance sheet under stress.
What Distinguished the Strongest Leadership Decisions
The organisations that navigated 2022 most effectively were not those that hedged everything.
They were the ones who understood, in advance:
• Which exposures were core
• Which exposures could evolve
• Where interaction risk could emerge
• What residual risk were they willing to carry
They did not treat hedging as a transaction. They treated it as a definition of risk.
What the Markets Taught Me
In 2022, the market did not test whether companies had hedged.
It tested whether they had defined their exposure completely.
The instruments worked. The pricing held.
But the balance sheet still moved where the definition had stopped.
Hedging did not fail. It revealed the edges of leadership judgment.
What the markets taught me: hedging does not eliminate risk. It makes risk visible – and leaves everything undefined exposed.
The same sequence is running today. A geopolitical shock in the Middle East has pushed capital toward the dollar. G7 rate divergence persists. The NGN official rate sits around ₦1,387 while the parallel market holds in the ₦1,430s. KES is near 129. ZAR in the mid-16s against the dollar. The instruments available to corporates with exposures across these markets will execute exactly as structured.
The question today, as it was in 2022, is whether the definitions of those instruments still protect the full shape of the exposure, or only the shape it had when the mandate was approved.
A Question for Leaders
When you look at your current FX exposures – across supplier payments, funding, and repatriation – are you confident that the boundary of your hedge reflects the full shape of your risk?
Or does it reflect only the part that was easiest to define at the time?
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Lessons from the Markets is a bi-weekly reflection on financial risk, leadership judgment, and decision-making under uncertainty, drawn from nearly two decades of originating, executing, and advising FX, rates, and select commodities solutions for global multinationals and large corporates with Africa-linked FX and interest rate exposures across operations spanning Africa, the UK, and wider EMEA.
Each edition builds on the last – refining frameworks, strengthening judgment, and extracting practical lessons that help leaders navigate cross-border complexity, optimise risk, and turn volatility into strategic advantage.
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The stories and scenarios in this newsletter are composite reflections drawn from multiple real market experiences across nearly two decades. They do not refer to any specific client, transaction, or institution.
Inetina Ebitonmor
Global Markets & Financial Risk Leader | 15+ Years in FX, Rates & Derivatives
Helping global multinationals and large corporates protect margins and preserve capital across African FX and rates cycles – through disciplined risk interpretation and decision-making under uncertainty.
Author, Lessons from the Markets
