FX Hedging and Portfolio Model

The model organises the FX book around six currency pairs, each with an assigned weight that sums to one. A leverage multiple scales base capital into total notional, which is then split across pairs.

• For each pair, the model captures three return drivers: carry from interest rate differentials, spot P&L from directional exchange rate moves, and roll yield from forward points. Carry can be negative for pairs held for spot diversification.
• Spot returns are set year by year, allowing emerging market pairs to show higher initial returns that decay toward developed market levels. Roll yield is held flat annually.

Revenue builds from pair-level calculations. Carry equals pair notional times interest rate differential.

• Spot P&L equals pair notional times the year-specific spot return. Roll yield equals pair notional times a per-pair roll yield rate.
• These streams aggregate into total gross revenue on the income statement. From there, the model deducts financing cost, management fee, performance fee, operating expenses, depreciation, and tax to reach net income.
• Net income feeds the equity roll-forward and the cash flow statement. Management fee is based on opening equity, while performance fee applies only to gains above a rolling high-water mark.

The Returns sheet uses base capital, annual distributions, and terminal equity to calculate IRR and equity multiple.

Carry = pair notional × interest rate differential
Spot P&L = pair notional × the year-specific spot return
Roll yield = pair notional × a per-pair roll yield rateCopy

The model produces an income statement, balance sheet, cash flow statement, and a Returns sheet. The Returns sheet shows IRR, equity multiple, and MOIC from the investor perspective.

• The balance sheet tracks cash, margin deposits, PP&E, contributed capital, and retained earnings, with an equity roll-forward that reconciles net income, distributions, and contributions. The income statement presents gross revenue, financing cost, management and performance fees, operating expenses, depreciation, and tax.
• A Checks sheet validates balance sheet integrity, equity positivity, cash buffer, pair weights, high-water mark behaviour, margin utilisation, and performance fee logic in loss years.

This template suits portfolio managers, family offices, or corporate treasuries evaluating a leveraged FX book across multiple pairs. Users can adjust assumptions such as pair weights, leverage, interest rate differentials, spot return paths, roll yield rates, fee rates, operating expenses, and tax.

• The model then recalculates revenue, expenses, net income, equity, cash, and investor returns. It is particularly useful for testing how changing leverage affects financing costs and margin utilisation, or how different spot return assumptions influence performance fees through the high-water mark mechanism.
• The values-only preview shows the structure and outputs but does not include live formulas.