The fluctuation risk between dollar and euro is easier to oversee and estimate than the risk between the euro and the local currency of an emerging market. The interest rate differential between euro and dollar is typically more limited too. The operational costs to hedge the euro/dollar risk are significant. In contrast, the risk over the maturity (maximum of 3 years) of a dollar project on the platform is manageable and limited. Therefore, we think it is a responsible choice not to hedge that risk and an investor can decide for themselves if he/she is willing to take the euro/dollar risk.
In the case of unknown and volatile emerging market currencies, we find that it would be irresponsible to leave the currency exchange risk to the investor. Therefore, we offer entrepreneurs the choice between financing in EUR, USD, or their local currency. If the entrepreneur chooses local currency funding, we hedge the currency exchange risk with TCX.